I am a U.S. government employee whose spouse has been transferred temporarily to Canada. I was telecommuting part-time and now, to avoid traffic delays at border crossings, have been approved for full-time telecommuting. Will I have to pay Canadian income tax on my earnings?

Under the United-Canada Income Tax Treaty, government employees are not required to pay taxes to Canada. Article XIX states that "remuneration, other than a pension, paid by a Contracting State or political subdivision or local authority thereof to a citizen of that State in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in that State."

My partner has been transferred to Canada for a work project, and my employer will allow me to continue my job in a telecommuting capacity. I will occasionally make trips to the office for meetings or other work reasons. Do I have to pay Canadian income taxes? We still maintain a residence in the United States and return on weekends and holidays.

This person is not a government employee, so this situation is tricky. As Canadian taxes are based on residency, you need to prove that you are not a resident of Canada. One key is that you are making trips to the home office and that reinforces that you are not a resident. Keeping a residence in the U.S. and returning at regular intervals is also wise. You must complete a form that is used by Revenue Canada to determine your residency status. The form is "Determination of Residency NR 74," which you can download and review to see what is needed.

I am a Canadian working as an independent contractor in a telecommuting capacity for an American company. All my work is done in Canada. Do I have to pay the IRS?

No. Since the American tax system is based on where the work is performed, you do not pay any taxes in the U.S. However, be advised that if you ever travel to the U.S. for even one day for work-related matters, you may become liable for tax payment in the U.S. You should declare your income in Canada on your taxes, remembering to convert it to Canadian funds.

I am a Canadian and living in the United States. My employer is in Canada, and I can use telecommuting to keep my job. Who do I pay my taxes to?

Unless you intend to give up your Canadian citizenship, you still pay Canadian taxes on your income. You may also have to pay U.S. state income taxes. Check with the state where you reside, since not all states have income taxes.

Tax Implications of Cross-Border Telecommuting

The tax situation can be complicated for people who live or work across borders

Catherine Roseberry

Updated on November 8, 2021

When you contemplate telecommuting for a job in a different country—known as cross-border telecommuting—consider differences in the way each country collects taxes. This applies to countries such as Canada and the United States, as well as between states and provinces.

Map of North America — KTDesign/Science Photo Library / Getty Images

How Taxes Work in the U.S. and Canada

Under the Canadian system, taxes are based on residency, not citizenship. If you have been in Canada for more than 183 days, your income, no matter the source, is taxable in Canada. There are exceptions for government employees.

In the United States, taxes are based on citizenship and where you perform the work. So, based on citizenship, the U.S. can tax its citizens in Canada. Where you perform the work determines tax issues on the state level.

A tax treaty is in place between Canada and the United States. It sets out the circumstances for who has a claim on income taxes and who must pay the respective country. There are provisions to prevent double taxation.

Tax law is complex and rooted in domicile—the specific jurisdiction where you live. Always consult a tax professional in your community for advice relevant to your unique domicile and employment situation. Although guidance from trusted internet resources helps get you started, only your local certified public accountant or tax attorney can render authoritative guidance.

Q&A for Different Telecommuting Scenarios

FAQ

I am a U.S. government employee whose spouse has been transferred temporarily to Canada. I was telecommuting part-time and now, to avoid traffic delays at border crossings, have been approved for full-time telecommuting. Will I have to pay Canadian income tax on my earnings?

Under the United-Canada Income Tax Treaty, government employees are not required to pay taxes to Canada. Article XIX states that "remuneration, other than a pension, paid by a Contracting State or political subdivision or local authority thereof to a citizen of that State in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in that State."
My partner has been transferred to Canada for a work project, and my employer will allow me to continue my job in a telecommuting capacity. I will occasionally make trips to the office for meetings or other work reasons. Do I have to pay Canadian income taxes? We still maintain a residence in the United States and return on weekends and holidays.

This person is not a government employee, so this situation is tricky. As Canadian taxes are based on residency, you need to prove that you are not a resident of Canada. One key is that you are making trips to the home office and that reinforces that you are not a resident. Keeping a residence in the U.S. and returning at regular intervals is also wise. You must complete a form that is used by Revenue Canada to determine your residency status. The form is "Determination of Residency NR 74," which you can download and review to see what is needed.
I am a Canadian working as an independent contractor in a telecommuting capacity for an American company. All my work is done in Canada. Do I have to pay the IRS?

No. Since the American tax system is based on where the work is performed, you do not pay any taxes in the U.S. However, be advised that if you ever travel to the U.S. for even one day for work-related matters, you may become liable for tax payment in the U.S. You should declare your income in Canada on your taxes, remembering to convert it to Canadian funds.
I am a Canadian and living in the United States. My employer is in Canada, and I can use telecommuting to keep my job. Who do I pay my taxes to?

Unless you intend to give up your Canadian citizenship, you still pay Canadian taxes on your income. You may also have to pay U.S. state income taxes. Check with the state where you reside, since not all states have income taxes.

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