Income from employment is generally sourced to where the work is performed. This means that the country where the work was performed usually has the first right to tax payments or withholdings on the income. If you are a tax resident of a country that differs from the one you are working in, a tax credit is generally available in the country of residence upon filing an income tax return. The Canada/US tax treaty includes some exemptions to this for non-resident individuals.
Possible earnings exemption
If you are a resident of Canada performing work in the US and you make less than $10,000, it may be possible to exclude that income from US taxation. This may also work the other way around for Americans working in Canada as well.
Possible other exemption
If you make more than $10,000 it may still be possible to exclude your income from your host country taxation if you were both:
- present for fewer than 183 days in a twelve-month period in a fiscal year; and
- the remuneration was not borne by an employer who is resident in the host country.
The employer company may still be liable for the withholding tax but it may be possible to apply for a waiver on withholding.
While these are some general rules that may apply, it is important to note there are also some deviations from this. For instance, certain US states have very specific rules regarding the sourcing of income earned from an employer in a state, even if the work is being performed outside of that state.
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The views expressed in this article are those of the author and should not be relied on to make decisions. Consider discussing your specific circumstances with an appropriate specialist.