US Citizens Filing Taxes in Canada

Tax Filing Information for U.S. citizens and Green Card holders living in Canada:

If you are a U.S. citizen living in Canada you are subject to the same filing requirements that you would be subject to if you were living in the U.S.

What this means is you must file U.S. Form 1040 every year, reporting all of your worldwide income.

If you are a U.S. citizen resident in Canada, you must file two returns each year: a Canadian return because you reside here, and a U.S. return because you are a U.S. citizen. Luckily, this does not necessarily mean you’ll have to pay taxes to both countries. There are several mechanisms available to make sure you’re not taxed twice on the same income.

Here is a brief guide of the Forms and Rules you need to follow to file your income tax.

Form 1040 and FBAR:

The 1040 form is the standard documentation for filing your income tax return to the U. S. Internal Revenue Service (IRS).

In addition to filing an annual tax return, you also may be required to submit documentation to the U.S. Treasury. This form is called the FBAR for Foreign Bank Account Reporting. ( Additional reporting is necessary if you own a Tax Free Savings Account, Registered Education Savings Plan or a Canadian corporation.

Form 2555-Earned Income Exclusion:

You may be able to exclude up to $92,900 from income for U.S. tax purposes by completing Form 2555 and attaching it to your return. Form 2555 is a special form excluding foreign earned income from taxation in the United States. To claim this exclusion you must be a legitimate resident of Canada or must have been living in Canada for at least 330 days out of the last 12 months. You are also required to file your return on time to benefit from this exclusion.

Treaty Benefits:

In most cases, treaty benefits are not available to U.S. citizens living in Canada. The treaty states that nothing can prevent the US from taxing its own citizens, except in certain circumstances. One of these circumstances is the article governing Social Security payments.

This means that if you receive Social Security benefits from the U.S. when living in Canada these benefits are not taxable in the U.S.

They are taxable only in Canada. Because of this, you may claim a 15% deduction on Line 256 of your Canadian tax return.

Foreign Tax Credit:

Another way to avoid double taxation is by claiming a foreign tax credit on your U.S. return for taxes you are required to pay to Canada. To claim the credit, you must complete Form 1116 and attach it to your U.S. return. Alternatively, you can claim the Canadian taxes you paid as an itemized deduction. Both the deduction and credit are limited to foreign income that is subject to U.S. tax, so neither can be claimed for income excluded on Form 2555.

Filing Deadline:

If you live outside the U.S., you have an automatic extension of two months to file your U.S. tax return. This means, your U.S. return is due on June 15 each year, rather than April 15. This provides time for you to finish your Canadian return and determine your Canadian tax liability. This is needed in case you have to claim the foreign tax credit on your U.S. return. It is important to realize that while you have until June 15 to file your US tax return if you live in Canada, the IRS will begin assessing interest on any unpaid balances on April 15th.

Useful Websites:

Internal Revenue Agency

Social Security Online – The official website of the U.S. Social Security Administration

U.S. Consulates General

U.S. Citizenship and Immigration Services

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