Many people wonder whether taxes are higher in Canada or US. This question may depend on income, elevation, or how much taxes someone is willing to pay. While both sister countries have major forms of income tax, they approach the issue a bit differently.
Income Taxes: Federal vs. Combined Rates
Americans pay federal income tax based on a series of progressive tax brackets ranging from 10% to 37% as of 2025. Usually, states have their in income tax as well, but some states like Texas, Florida, and Nevada do not, resulting in a much lower tax burden. Thus, the overall tax burden is very different based on where in the country you live.
In Canada, income tax is also a federal tax, but there is a tax for every province as well. For instance, Ontario and British Columbia have a moderate tax, while Quebec has a significantly higher tax. Furthermore, other social programs like the Canada Pension Plan (CPP) and Employment Insurance (EI) increase the overall burden.
Who Pays More?
- Middle-income earners: Canada typically has a higher overall tax rate due to combined federal and provincial taxes, as well as mandatory social contributions.
- High-income earners: The comparison depends on location. A high earner in a no-tax US state may pay less than a comparable Canadian, but someone in California or New York could face higher taxes than most Canadians.
- Social benefits vs. deductions: Canada offsets higher taxes with benefits like universal healthcare, parental leave, and employment insurance. The US relies more on deductions, credits, and private benefits.
Other Considerations for Canada or US Taxes
- Capital gains: Canada taxes only 50% of capital gains, while the US offers preferential long-term capital gains rates.
- Corporate and sales taxes: Sales taxes (GST/HST in Canada vs. state sales taxes in the US) and corporate taxes also differ, affecting overall cost of living and business expenses.
- Residency matters: US citizens are taxed on worldwide income regardless of residence, while Canada taxes based on residency. This distinction can affect dual citizens or expats.
If you’re comparing your tax burden: Canada or US — or planning a move across the border — Dimov Tax can model both scenarios and present assistance in choosing the most tax-efficient path for your income and investments. Contact us today for expert support.