Remote work has dramatically expanded cross-border opportunities for US citizens. According to LinkedIn data, 22% more US workers held remote positions for foreign employers in 2024 compared to the previous year. Yet, these roles often create confusion about tax obligations, especially for those working for Canadian companies.
Many remote professionals are tripped up by IRS global income rules, the US-Canada Tax Treaty, state tax quirks, and foreign bank account requirements. If you’re a US citizen working remotely for a Canadian company, understanding your tax duties in 2025 is critical to avoid penalties, double taxation, and compliance headaches.
This comprehensive guide demystifies the process for US citizens earning income from Canadian employers. You’ll learn what taxes you owe (and to whom), IRS and FBAR filing requirements, how credits and exclusions work, and pro tax tips for professional cross border tax accountants.
Key Tax Rules for US Citizens Working Remotely for Foreign Companies
US Citizenship-Based Taxation Explained
The United States is unique in that it taxes its citizens on their worldwide income, regardless of physical location. This means that even if you’re living and working entirely within the US for a foreign (Canadian) employer, the IRS expects you to report and pay taxes on your Canadian earnings.
IRS Obligations: Global Income Reporting
Every US citizen must report all sources of income on their annual Form 1040—even if the money comes from a Canadian company and is paid in Canadian dollars. There are no exceptions for the source of the employer. Pay close attention to income reporting, especially if your pay structure or benefits are complex.
Canadian Company vs. Canadian Payroll: Why It Matters
Some US citizens work for a Canadian business but are paid through US payroll or as contractors. The method of payment affects your tax situation:
- Paid via Canadian payroll may mean withholding for Canadian taxes, but that’s often incorrect for remote US workers.
- Paid as a contractor brings self-employment tax considerations.
Is Canadian Income Taxable in the US?
Yes, all income earned from your Canadian employer is subject to US federal and (where applicable) state income taxes. The IRS doesn’t care where your employer is located; what matters is your citizenship and tax residency.
Do You Owe Taxes to Canada If You’re a US Citizen Working Remotely?
Residency Status: Why It Matters
Canadian tax liability is largely based on where you live and physically perform your work. If you remain in the US and never step foot in Canada for work, you’re typically not considered a Canadian resident for tax purposes.
If You Never Physically Enter Canada
The Canada Revenue Agency (CRA) generally won’t tax your income if all your work is performed from the US. You’re not using Canadian resources or services, so your income is not considered “Canadian-sourced.”
Non-Resident Tax Rules for Remote Workers
Canadian non-residents working for a Canadian company, while physically outside Canada, typically have no Canadian tax filing obligation. However, Canadian payroll systems may mistakenly withhold taxes; if so, request a stop or apply for a refund.
When Canadian Payroll Withholding May Still Happen
Canadian employers may, by mistake, withhold Canadian payroll taxes. Immediately clarify your non-resident status to your employer. If necessary, consult a cross-border accountant to recover withheld taxes.
Your US Tax Obligations When Working for a Canadian Company
Reporting Worldwide Income on Form 1040
All US citizens must report global income, including pay from Canadian companies, on IRS Form 1040. Use the IRS yearly average exchange rate or daily rate for currency conversions. Keep detailed records of each conversion.
Dealing With Canadian Pay: FEIE vs. FTC
- Foreign Earned Income Exclusion (FEIE) typically applies if you physically reside outside the US for at least 330 days in a 12-month window. Most remote workers in the US for Canadian companies do not qualify for the FEIE.
- Foreign Tax Credit (FTC) allows you to offset US taxes with foreign taxes paid. If you’re not taxed in Canada, credits may not apply.
How Currency Exchange Affects Your US Tax Return
Report all Canadian income in US dollars. The IRS permits using the yearly average exchange rate (find the official rate on the IRS website). Improper currency conversion is a common audit trigger.
State Tax Implications
If you reside in a state with personal income tax (e.g., California, New York), you must report Canadian-sourced income there as well. State rules differ on credits; check your state’s Department of Revenue.
How the US-Canada Tax Treaty Impacts Remote Workers (2025 Update)
Basics of the US-Canada Tax Treaty
This treaty prevents double taxation and misclassification when income, employment, or investments touch both countries. It defines how and where income is taxed.
How the Treaty Protects Against Double Taxation
Article XXIV ensures that if you are somehow taxed in both countries on the same income, you can use foreign tax credits to offset US tax liability with Canadian taxes paid (and vice versa).
Article XV: Dependent Personal Services Explained
Article XV states income from employment is usually taxed in the country where services are performed. If you work entirely in the US, only the US should tax your wages—even for a Canadian employer.
How To Claim Tax Treaty Benefits Properly
If you’re taxed in both countries, use Form 8833 to disclose treaty positions on your US return. Provide appropriate documents, such as proof of where work was performed or days spent in each country.
Foreign Bank Accounts and Financial Assets: What You Must Report
FBAR (FinCEN Form 114) Requirements
You must file an FBAR if you have foreign bank or financial accounts exceeding $10,000 (USD) at any point in the year (in aggregate). File electronically by April 15, with auto extension to October.
Learn more about FBAR requirements here.
FATCA (Form 8938) If Your Canadian Accounts Exceed Thresholds
If combined foreign assets are above $50,000 (single filers) or $100,000 (joint filers), you must submit IRS Form 8938 with your 1040.
Penalties for Missing Foreign Asset Reporting
Failure to report can bring serious penalties:
- FBAR non-filing penalty can exceed $10,000 per year.
- FATCA penalties start at $10,000 and may be higher for willful violations.
Simple Checklist to Stay Compliant
- Record all foreign accounts and their maximum yearly balances.
- Check if your Canadian employer provides retirement or investment accounts.
- Always use official IRS rates for currency conversion.
Common Mistakes US Remote Workers Make (and How to Avoid Them)
Assuming No US Taxes Because Employer Is Canadian
US citizens are taxed on worldwide income. You must file US taxes no matter your employer’s location.
Ignoring State-Level Tax Filing Obligations
Don’t overlook state income tax, particularly if you live in a state with no automatic exclusion for foreign income.
Missing Foreign Account Reporting
Even if your main account is Canadian or under your employer’s control, you may be required to report as soon as combined balances top $10,000.
Not Converting CAD Income Properly for IRS Reporting
Always use IRS-approved rates. Improper conversions mean your return could be flagged.
How to Maximize Tax Benefits When Working Remotely for a Canadian Company
Strategic Use of the Foreign Tax Credit
If your Canadian employer withholds income tax, claim a Foreign Tax Credit against your US taxes using Form 1116. Only taxes actually paid can be used for credits.
When the Foreign Earned Income Exclusion Applies
This applies only if you live outside the US and meet physical presence tests. Purely remote US-based workers cannot claim the FEIE.
Deductible Business Expenses for Remote Workers
If you’re an independent contractor (self-employed), you can deduct eligible business expenses like home office costs, equipment, internet, and supplies.
Planning Tips for Self-Employed Contractors
- Set aside 25-30% of your income for estimated quarterly taxes.
- Keep thorough, dated receipts of all expenses.
- Track both CAD and USD earnings consistently.
Should You Hire a Cross-Border Tax Expert?
When You Can DIY vs. When You Need Professional Help
If your situation is straightforward (employee, US resident, no Canadian taxes withheld), self-filing may be sufficient using reputable tax software.
For complex cases (dual residency, Canadian retirement accounts, investment income, or payroll misclassification), hiring an experienced cross-border tax accountant is recommended.
How a US-Canada Tax Specialist Can Save You Penalties and Taxes
A specialist can identify credits, prevent double withholding, and ensure compliance with both IRS and CRA rules. They also handle late filings and help rectify missed FBAR/FATCA obligations.
What to Look for in a Tax Preparer
- Proven cross-border experience (preferably CPA or EA with dual-country clients)
- Clear experience handling remote worker returns
- References or testimonials from other US/Canada remote professionals
Staying Ahead on Cross-Border Tax Compliance
Remote work across borders is both rewarding and complex. Early tax planning is essential to avoid double taxation, missed filings, and unnecessary penalties. Use IRS and CRA resources, apply the tax treaty where appropriate, and keep excellent records. For many, an annual check-in with a cross-border tax pro ensures bulletproof compliance.
If you’re facing a new remote opportunity with a Canadian company in 2025, get organized now. Review your residency, clarify payment structure, and log every foreign account. Staying proactive can save you hours (and thousands in penalties) at tax time.
Ready to simplify your Taxes? Book your free consultation today and experience the SAL Accounting difference firsthand!
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