Citizens Living Abroad: Canadian and U.S. Tax Issues
Canadian & U.S. Tax Issues
Foreign Income & Foreign Income Exclusion
Nonresident Alien - General
Nonresident Alien - Tax Withholding
Nonresident Alien - Students
U.S. Citizens Overseas
I am a U.S. citizen. If I move to Canada to live and work there as a Canadian
permanent resident, do I pay both U.S. and Canadian Taxes?
United States citizens living abroad are required to file annual U.S. income tax
returns and report their worldwide income if they meet the minimum income filing
requirements for their filing status and age. You must contact the Canadian Government
to determine whether you must file a Canadian tax return and pay Canadian taxes.
For the United States income tax return, you will have several options available
to you regarding claiming a foreign tax credit or excluding some or all of your
foreign earned income.
I am a Canadian citizen living and working in the U.S. for a U.S. employer on
a visa. Do I need to file both a U.S. tax return and a Canadian tax return?
You must comply with both U.S. and Canadian filing requirements, if any. In the
United States, you generally are required to file a return if you have income from
the performance of personal services within the United States. However, under certain
circumstances, that income may be exempt from payment of U.S. tax pursuant to the
U.S.-Canada income tax treaty. You need to determine what type of visa you have,
and how that impacts your residency status in the United States. If, based on the
tax code and your visa status you are treated as a U.S. resident, then your entitlement
to treaty benefits will be impacted. You must contact the Canadian government to
determine whether you must file a Canadian tax return and pay Canadian taxes.
Are the Canada Pension Plan and Canadian Old Age Security Benefits taxable?
If they are, please tell me where they should be entered on Form 1040.
Benefits paid under the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and
Old Age Security (OAS) program to a U.S. resident are taxable, if at all, only in
the United States. According to the U.S. - Canada income tax treaty, taxation of
these benefits is based on residence. U.S. citizens or green card holders who reside
in Canada are not subject to U.S. tax on this income.
These Canadian benefits are treated as U.S. social security benefits for U.S. tax
purposes. Thus, under section 86 of the Internal Revenue Code, the portion of the
benefits that is taxable will depend on your income and filing status. If your modified
adjusted gross income is above certain limits, a maximum of 85% of your benefits
will be subject to U.S. tax. Refer to Tax Topic 423 for information about determining the taxable
amount of your benefits. Any benefit under the social security legislation of Canada
that would not be subject to Canadian tax if paid to a resident of Canada is not
subject to U.S. tax.
Canadian benefits that are treated as U.S. social security benefits are reported
on Form 1040
(PDF) , U. S. Individual Income Tax Return or Form 1040AA (PDF).
Is there an Internet site with the exchange rates to convert foreign currencies
to American dollars?
You can obtain currency exchange rates at the Federal Reserve Board web sites.
What is foreign earned income? Is it income from a foreign source or income
paid by a U.S. company while living abroad?
Earned income is pay for personal services performed, such as wages, salaries, or
professional fees. Foreign earned income is income you receive for services you
perform in a foreign country during a period when your tax home is in a foreign
country and during which time you meet either the bona fide residence test or the
physical presence test. It does not matter whether earned income is paid by a U.S.
employer or a foreign employer. Foreign earned income does not include the following
- The previously excluded value of meals and lodging furnished for the convenience
of your employer.
- Pension or annuity payments including social security benefits.
- Payments by the U.S. Government, or any U.S. government agency or instrumentality,
to its employees.
- Amounts included in your income because of your employer's contributions to a nonexempt
employee trust or to a nonqualifying annuity contract.
- Recaptured unallowable moving expenses
- Payments received after the end of the tax year following the tax year in which
you performed the services that earned the income.
Do I have to meet the 330-day presence test or have a valid working resident
visa to meet the requirement for foreign income exclusion?
To claim the foreign earned income exclusion, the foreign housing exclusion, or
the foreign housing deduction, you must have foreign earned income, your tax home
must be in a foreign country, and you must be one of the following:
- A U.S. citizen who is a bona fide resident of a foreign country or countries for
an uninterrupted period that includes an entire tax year,
- A U.S. resident alien who is a citizen or national of a country with which the United
States has an income tax treaty with a nondiscrimination article in effect and who
is a bona fide resident of a foreign country or countries for an uninterrupted period
that includes an entire tax year, or
- A U.S. citizen or a U.S. resident alien who is physically present in a foreign country
or countries for at least 330 full days during any period of 12 consecutive months.
U.S. tax law does not specifically require a foreign resident visa or work visa
for this purpose, but you (must/should) comply with the other country's laws.
I am a nonresident alien. Can I take the foreign earned income exclusion if I meet
the bona fide resident test or physical presence test? If yes, what is the tax form
used for nonresident taxpayer?
No, nonresident aliens do not qualify for the foreign earned income exclusion. Only
if you are a U.S. citizen or a resident alien of the United States and live abroad,
may you qualify to exclude a specific amount of your foreign earned income. Refer
to chapter 4 of
Publication 54 Tax Guides for U.S. Citizens and Resident Aliens Abroad,
for limitation that apply. If you are the nonresident alien spouse of a U.S. citizen
or resident alien, you can elect to be treated as a U.S. resident in order to file
a joint return. In this case, you can take the foreign earned income exclusion if
otherwise qualified. Refer to Publication 519, U.S. Tax Guide for Aliens,
for detailed instructions on how to make this election.
However, nonresident aliens would be able to exclude their foreign earned income
under the dual-status rules. Refer to Tax Topic 852 for dual-status information. A nonresident
alien is generally not subject to U.S. tax on compensation for services performed
outside the U.S.
I live in a foreign country. How do I get a social security number for my dependent
who qualifies for a social security card?
Use Form SS-5-FS which may be obtained from the
Social Security Administration.
My spouse is a nonresident alien. How can I get a nonworking social security number
Each foreign person who does not have and cannot obtain a social security number
must use an IRS Individual Taxpayer Identification Number (ITIN) on any U.S. tax
return or refund claim filed. For additional information on ITINs click on Individual Taxpayer Identification Number.
Under my visa as a temporary nonresident alien, I'm not subject to social security
and Medicare withholding. My employer withheld the taxes from my pay. What should
I do to get a refund of my social security and Medicare?
If social security tax and Medicare were withheld in error from pay received which
was not subject to the taxes, you must first contact the employer who withheld the
taxes for reimbursement. If you are unable to get a refund from the employer, file
a claim for refund with the Internal Revenue Service on Form 843 (PDF), Claim for Refund and Request for
You must attach the following to your claim:
- a copy of your
Form W-2 (PDF), Wage and Tax Statement, to prove the amount
of tax withheld;
- Form I-797, INS Approval Notice, is needed if you have changed
your status from F-1 or J-1 to another status prior to filing the claim;
- if your visa status changed during the tax year you should attach copies of the
pay stubs that cover the period of exemption from social security taxes;
- a copy of INS Form I-94, Arrival/Departure Record, if you are still in the United
- a copy of your valid entry visa;
Form 8316 (PDF) , Information Regarding Request for
Refund of Social Security Tax , or a signed statement stating that you
have requested a refund from the employer and have not been able to obtain one;
- a copy of Form
1040NR (PDF) , US Nonresident Alien Income Tax Return (or Form 1040NR-EZ (PDF)), for tax the year in question. Processing
of your claim may be delayed if you submit it less than six weeks after you filed
Form 1040NR or 1040NR-EZ.
In addition to the documentation listed above foreign student visa holders should
also attach the following:
- a copy of Form I-20, Certificate of Eligibility, endorsed by your student advisor
and stamped by the Bureau of Citizenship and Immigration Services; and
- a copy of the Employment Authorization Document of your Optional Practical Training
(e.g., Form I-766, I-538 or 688B).
- if you are an exchange visitor, attach a copy of Form IAP-66 or DS-2019 to your
File the claim, with attachments, with the IRS where the employer's returns were
filed. If you do not know where the employer's returns were filed, send your claim
to the Internal Revenue Service Center, Philadelphia, PA 19255.
For more information, refer to Chapter 8 of Publication 519, U.S. Tax Guide for Aliens
Are nonresident alien students, with F-1 or J-1 visas and employed by a U.S. company
during the summer, required to have federal income taxes withheld from their paychecks?
The following discussion generally applies only to nonresident aliens. Wages and
other compensation paid to a nonresident alien for services performed as an employee
are usually subject to graduated withholding at the same rates as resident aliens
and U.S. citizens. Therefore, your compensation, unless it is specifically excluded
from the term "wages" by law, or is exempt from tax by treaty, is subject to graduated
withholding. Nonresident aliens must follow modified instructions when completing Form W-4
(PDF). Please refer to chapter 8 of Publication 519, U.S. Tax Guide for Aliens,
for directions on completing
Form W-4 (PDF), Employee's Withholding Allowance Certificate.
I am a U.S. citizen working abroad. Are my foreign earnings taxable?
A U.S. citizen or resident alien is generally subject to U.S. tax on total worldwide
income. However, if you are a United States citizen or a resident alien who lives
and works abroad, you may qualify to exclude all or part of your foreign earned
income. For specific information, refer to Tax Topic 853, Foreign Earned Income Exclusion -
If you would like more information on who qualifies for the exclusion, refer to
Tax Topic 854,
Foreign Earned Income Exclusion - Who Qualifies. For more information
on what type of income qualifies for the exclusion, refer to Tax Topic 855, Foreign Earned Income Exclusion -
What Qualifies. You may also wish to refer to chapter 4 Publication 54, Tax Guide for U.S. Citizens and Resident
Aliens Abroad, for a detailed discussion.
If the information you need relating to this topic is not addressed in Publication
54, you may call the IRS International Tax Law hotline. The number is (215) 516-2000.
This is not a toll-free number.
I am a U.S. citizen working for a U.S. firm in a foreign country. Is any part
of my wages or expenses tax deductible?
U.S. citizens are taxed on their worldwide income, no matter where they work. Some
taxpayers may qualify for the foreign earned income exclusion, foreign housing exclusion,
or foreign housing deduction, if their tax home is in a foreign country and they
are either a bona fide resident of a foreign country or countries for an uninterrupted
period that includes an entire tax year, or are physically present in a foreign
country or countries for at least 330 full days during any period of 12 consecutive
months. If the taxpayer is temporarily away from his or her tax home in the United
States on business (less than a year), the taxpayer may qualify to deduct away from
home expenses (for travel, meals, and lodging ) but would not qualify for the foreign
earned income exclusion.
I am a U.S. citizen living and working overseas. Can I have a tax credit on
my U.S. taxes for the taxes I pay to the foreign country?
The foreign tax credit is intended to relieve U.S. taxpayers of the double tax burden
when their foreign source income is taxed by both the United States and the foreign
country from which the income is derived.
Generally, only income taxes paid or accrued to a foreign country or a U.S. possession
qualify for the foreign tax credit. You can choose to take the amount of any qualified
foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized
To choose the foreign tax credit you must generally complete Form 1116 (PDF), Foreign Tax Credit
and attach it to your
Form 1040 (PDF). You may claim credit without attaching Form 1116 if all
of your foreign source income is passive income (such as interest and dividends)
reported to you on a payee statement and the total amount of qualifying foreign
taxes you paid or accrued is not more than $300 ($600 in the case of a joint return)
and is also reported to you on a payee statement. To choose the deduction, you must
itemize deductions on
Form 1040, Schedule A (PDF) .
You may not take either a credit or a deduction for taxes paid or accrued on income
you exclude under the foreign earned income exclusion or the foreign housing exclusion.
There is no double taxation in this situation because the income is not subject
to U.S. tax.
How do I know if the U.S. has an income tax treaty with another country?
901, U.S. Tax Treaties , has information regarding United
States tax treaties.
You can also locate the complete text of most current treaties at Income Tax Treaties or use our search engine with keywords
"income tax treaties."