Working for a US company in Canada with a TN

Hi Folks,

I am currently working on relocating from the US to Canada. I have lived in the US for ~7 years, first on a H1B for 6 years and now on a TN. I cut off all residential ties to Canada 7 years ago and have been filing 1040 ever since.

I would like to continue drawing my current US salary after relocation. I understand that after moving my tax home back to Canada, I would file a 1040NR and 8833 for the portion that I am now a resident of Canada and a T1 (claiming foreign tax credit), and a 1040 for the time I still considered the US my tax home for the transition year. After which the subsequent years I file a 1049NR and 8833, and T1 form (claiming foreign tax credit).

I believe that I should retain my TN status as I do frequently come to the US for sales meetings.

My questions:

-Why is it so complicated to move my tax home back to Canada? I've read many references to this on the forum.

-Does my employer have to fill out any extra forms, or is it business as usual since I am the one responsible for the tax payments and filing in both the US and Canada. I've read IRS publication 515 p22-26, and from what I understand, my employer does not need to withhold any more taxes than they do already since I am an employee subject to the same graduated withholdings as US citizens/residents and my wages are effectively connected with the conduct of US business.

-Are there any other forms I am missing? Do I need to do a new W4 with NRA on it?

-- Thu Jul 09, 2009 2:11 pm --

Pardon the typo in the original message. 1049NR = 1040NR.

Also, another question came to my mind. If all I am doing are sales meetings/seminars in the US, do I need a TN visa still? Primarily I will be working from home in Toronto.

Thanks!!!!

I think you've got a misunderstanding here of your tax situation, if you're working in Canada you have to be on a Canadian payroll and payroll withholding (income tax, CPP) has to be done.

If you're a one-off Canadian employee the usual method is to register as self-employed in Canada and invoice them for the work done in Canada and you perform the payroll withholding yourself. But in the US you stay on their payroll as an employee and you get a W-2 for the work physically done there.

The employer can optionally send you a 1042-S (for the work done in Canada) to report what they've paid you but because Canadians are exempt from NRA withholding this is usually only done for auditing purposes.

Read the CRA self-employed guide, you need to get a business number and a GST number. Usually in this situation GST is zero-rated because technically you're exporting your services, depends on exactly what you're doing though, check with the CRA.

You also report the income from your W-2 on your T1 and claim a foreign tax credit for that.

On the US end you file a 1040NR and you may also need to file other paperwork depending on your situation, if you're there less than 183 days a year you file 8840. If you're there more than 183 days and earn less than $100,000 you generally don't file anything additional, if it's over $100,000 you have to formally claim tax treaty status on Form 8833.

To find out whether you need TN-1, do a web search for "B-1 NAFTA entry" and read the regulations, sales meetings and seminars typically don't need any sort of authorization. The snag is though you are self-employed, if your primary client is a US company, CBP tend to look on that as being directly employed by the US company because the relationship between you and the Canadian company is not arm's length. And clearly you are directly employed by them if you get a W-2 from them.

Yes, you will need to give your employer a new W-4 and put down "non-resident alien" as the answer to question 6. (Assuming you remain on their payroll).

Moving your tax home out is complex because you have to file dual-status for the year you leave unless you leave on December 31st. Plus you have to pro-rate your T1 to the number of days you were in Canada after you arrived.

And there are a wide variety of forms you may need to file with the dual-status return, the main ones usually being 1040-C and 8854.

Read IRS publication 519.

Thanks for the detailed answer Steve!

In the event that I decide to live in Canada and physically work in the US on a daily basis, then I would need a TN visa, and all my earnings would be reported on the W-2, and I declare those earnings on the T1, claim foreign tax credit, and pay any additional taxes owed to the Cdn govt. Is this correct? This is another option I could do. Being a contractor for the company is not appealing to them...

Thanks!

Yes, on the Canadian end. You'd also have to file a 1040NR in the US.