The Federal Tax Credits Blog

Question: US Canada taxes?

Hi, my situation is as follows:
- I currently live in Canada and work for a company in the US.
- work from my home in canada and travel to US (MA) for 3 days a month
- pay US federal taxes, but not state taxes

When I filed my taxes in Canada last year I claimed the foreign tax credit for the federal US taxes I paid. However, I am concerned that I should have applied to the US to refund most of the taxes I paid since most of the services I performed were in Canada. Is this what I need to do or do I just claim all of the taxes I paid to the US on my Canadian return?

Thanks.

Thanks for you help.

Answer: You are an employee of an American company, and therefore earn the income outside of Canada. You may do most of the work in Canada, but only because you work from home.

Canada and the US have a tax treaty. That means that you file your return here, and the taxes that you paid in the US count towards the taxes you pay for Canada.

You report your gross income (amount before taxes and income). Then you get a tax credit for the US federal tax that was withheld.

Here’s what the CRA says:
————————————

Line 104 – Foreign employment income

Foreign employment income is income earned outside Canada from a foreign employer. Report this income in Canadian dollars. Use the exchange rate that was in effect on the day you received the income or, if the amount was paid at various times throughout the year, you can use our average annual rate.

Note
U.S. wages reported on a U.S. W-2 slip may be reduced by such contributions to a “401(k), 457 or 403(b) plan, US Medicare and Federal Insurance Contributions Act (FICA)”. These contributions are not deductible on your Canadian return and must be added to your employment income at line 104.

If you paid foreign taxes on foreign income you received, do not reduce the amount you report by the amount of tax the foreign country withheld. However, you may be able to claim a foreign tax credit when you calculate your federal and provincial or territorial taxes. See line 405 – Federal foreign tax credit, for details.

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