US taxes vs Canada taxes is a frequent question for Americans, Canadians, dual citizens, and cross border workers. The answer is, for the most part, that the US taxes people based on citizenship, while Canada taxes people based on residency, and that one difference drives almost everything else, such as income brackets, deductions, obligations to file and everything else.
These guides intend to show the most plain and oversimplified comparisons between the two systems so one could deduce which, if either, of the countries’ systems may work to your advantage depending on the applicable tax rates, and what may be expected if one decides to cross the border for work, investment, or residence.
What Is the Main Difference Between US and Canadian Taxes?
The US operates on citizenship-based taxation, while Canada does residency-based taxation.
US System (Citizenship-Based)
- US Citizens must file a federal tax return every year, regardless of where they live.
- Permanent residents (green card holders) must also file every year.
- Depending on which state one claims as a domicile, state taxes may also apply.
Canadian System (Residency-Based)
- Canada taxes individuals based on where they reside, regardless of citizenship.
- If you break residency ties with Canada, you generally stop filing taxes in Canada.
- Non-residents of Canada only pay taxes on income sourced in Canada.
Americans living in Canada usually have to file taxes to both countries, while Canadians living in the US only file in the US (unless they have Canadian income that is still active).
How Do US and Canada Income Tax Rates Compare?
The US and Canada both use progressive tax brackets, but Canada’s overall tax burden is often higher at middle-income levels due to combined federal + provincial rates.
| Country | Income Bracket | Tax Rate |
| United States (Single Filing) | up to $12,500 | 10% |
| United States (Single Filing) | $12,501–$60,000 | 12% |
| United States (Single Filing) | $60,001–$105,000 | 22% |
| United States (Single Filing) | $105,001–$200,000 | 24% |
| United States (Single Filing) | $200,001–$250,000 | 32% |
| United States (Single Filing) | $250,001–$600,000 | 35% |
| United States (Single Filing) | $600,001+ | 37% |
| Canada (Federal Only) | up to $55,000 CAD | 15% |
| Canada (Federal Only) | $55,001–$110,000 CAD | 20.50% |
| Canada (Federal Only) | $110,001–$155,000 CAD | 26% |
| Canada (Federal Only) | $155,001–$225,000 CAD | 29% |
| Canada (Federal Only) | $225,001+ CAD | 33% |
Which country has higher taxes?
- Low-to-middle earners: Usually higher in Canada due to provincial taxes.
- High earners: Roughly comparable; sometimes higher in US high-tax states (California, New York).
- No-tax states (Texas, Florida, Nevada) make the US potentially lower overall.
Do Both Countries Tax Capital Gains?
While both the US and Canada tax capital gains. Each country calculates the taxable amounts very differently; this creates very distinct tax rates which could impact you depending on your income and your level of invested assets.
In the United States, capital gains are categorized as short term and long term:
- Short term capital gains, which are assets held for one year or less, are taxed as ordinary income, which can be as high as thirty-seven percent.
- Long term capital gains, assets held for more than one year, are taxed at zero, fifteen, or twenty percent depending on your taxable income, with higher earners potentially owing an extra three percent for the Net Investment Income Tax.
Canada, on the other hand, does not separate short term from long term. Rather, fifty percent of every capital gain is taxable, and that taxable portion is added to your income and taxed at your provincial and federal tax rates. Where you live and how much you earn also greatly affect the overall effective tax rate on capital gains.
Do You Need to File Tax Returns in Both Countries?
Whether you have to file taxes in both Canada and the US depends on factors that include your citizenship, residency, and income sources. Many people who live and work in both countries have a dual obligation to file.
You may have to file both if:
- American citizens living in Canada: US citizens are required to submit a federal tax return each year regardless of where they live, even if they are paying taxes to Canada.
- Canadians living in the United States: Canadian residents who have Canadian assets, or earn income from Canada, may also have a Canadian tax filing requirement in addition to the US tax return.
- Cross-border employees: People who earn their income in one country and are a resident of the other may have to file in both countries.
To avoid double taxation, both countries offer options:
- Foreign tax credits: Any taxes paid to another country may sometimes be credited against a tax that is owed.
- US–Canada tax treaty: The treaty explains which of the countries gets first claim on specific types of income, like pensions or dividends.
- Tie-breaker residency rules: The treaty also provides rules to determine tax residence of a person who is considered a resident of both countries.
Note: Americans residing in Canada must submit a US tax return each year, even if foreign tax credits bring tax obligations in the US to zero. Not submitting a return can lead to penalties and difficulties involving Social Security, retirement accounts, and other compliance issues.
Dimov Tax Provides Support for US Taxes vs Canada Taxes
If you’re dealing with US Taxes vs Canada Taxes issues or dual filing or treaty questions, Dimov Tax can review your situation & optimize credits and assist you in staying fully compliant on both sides of the border. Contact us today for 360-degree support and full compliance.
FAQs
Are taxes higher in Canada or the USA?
Taxes are generally higher in Canada, especially for middle-income earners, because Canadians pay combined federal and provincial income taxes and do not have an equivalent to US no-tax states. However, high-income taxpayers in US states like California, New York, and New Jersey sometimes pay more than similar earners in Canada.
How much tax do I pay on $100k in Canada?
A Canadian earning CAD $100,000 typically pays roughly 28–32% in combined federal and provincial taxes, depending on the province. Ontario and British Columbia fall near the lower end, while Quebec tends to be higher.
Do Canadians pay the highest taxes in the world?
No. While Canada has relatively high taxes compared to countries like the US, its tax burden is lower than many European nations, including France, Denmark, and Sweden. Canada ranks near the middle among OECD countries.
Why is Canada so heavily taxed?
Canada’s higher tax levels fund nationwide social programs such as universal healthcare, employment insurance, parental leave, and retirement benefits. The system emphasizes public services over lower tax rates, shifting more responsibility to government-funded programs.
What is the 90% rule in Canada?
The 90% rule determines whether income is “earned in Canada” for certain tax credit calculations. If 90% or more of your income is from Canadian sources, you may qualify for full personal tax credits; if not, your credits may be reduced or unavailable.
How much income in Canada is tax-free?
Most taxpayers can claim the Basic Personal Amount, which is roughly $15,000 CAD tax-free at the federal level. Provinces also offer their own basic amounts, which increase the total amount of income you can earn before paying tax.