Do I Have to Pay Taxes in Both the US and Canada?
Yes—in accordance with the residency status and where income is sourced, taxation obligations might arise in both countries. The IRS and the CRA generally necessitate individuals with cross-border ties to file returns even when income was earned outside their primary country of residence.
Those who typically fall into such a category are listed below:
- U.S. citizens living or working in Canada
- Canadian residents with U.S.-based income
- Dual citizens filing on both sides of the border
- Remote professionals spending time in both countries
It is true that double taxation is a possibility, and mechanisms exist to lower or fully eliminate the overlap. At this point, a cross-border tax accountant might step in to interpret which country has the primary taxing rights and how to apply benefits under the U.S.-Canada tax treaty.
Common Scenarios That Trigger Dual Filing
Some of the most frequently observed cases can be demonstrated as below:
- U.S. expats residing in Canada who must still file with the IRS due to citizenship-based taxation
- Canadian investors in U.S. rental properties required to report both to the CRA and the IRS
- Digital nomads or tech professionals who spend significant time in either country while earning income
- Canadians receiving U.S.-source dividends or royalties that are subject to withholding tax
How Tax Treaties and Credits Help
The U.S.-Canada Tax Treaty assists in allocating taxing rights and limiting the impact of duplicate taxation, in addition to:
- Foreign Tax Credit (FTC): Offers a dollar-for-dollar offset when tax has already been paid to the other country
- Tax Treaty Benefits: May reduce withholding tax on cross-border payments—like limiting dividend tax to 15%
- Foreign Earned Income Exclusion (FEIE): May exclude a portion of foreign wages from U.S. taxation
- Form 1116 and Form 2555: These are frequently required to support treaty-based claims or credits
Filing accurately and using the correct forms is essential. Without strategic planning, treaty provisions might be overlooked, causing individuals to pay more than required.It should be acknowledged that each case is different—what applies to a digital consultant in Toronto working with U.S. clients will not mirror the needs of a dual-status executive with real estate in both countries. That’s where tailored guidance delivers value. Contact Dimov Tax for expert assistance with cross-border tax accountant needs.