Canadian taxes for Americans: how the CRA and the IRS fit together

Move to Toronto and you'll file two income tax returns every spring, one in each country. The good news: thanks to credits and the treaty, most Americans in Canada don't pay tax twice on the same dollar.

The short version

• The Canada Revenue Agency (CRA) decides residency by your residential ties. A home, a spouse or dependants in Canada are the big ones, and for most newcomers residency starts the day they arrive [1].
• Canadian residents pay federal plus Ontario tax. For 2026, federal rates run 14% to 33% and Ontario rates 5.05% to 13.16% [2]. Your Canadian return is due April 30, or June 15 if you or your spouse are self-employed [1].
• The IRS still taxes you as a citizen. Treaties generally don't reduce the US tax of US citizens [3], so your main tools are the foreign tax credit and the foreign earned income exclusion (USD 130,000 for 2025, USD 132,900 for 2026) [4].
• The treaty protects RRSPs and RRIFs: US tax deferral is automatic, and Form 8891 is gone [5]. It doesn't protect the TFSA.
• The US–Canada totalization agreement has been in force since August 1, 1984, so you pay into one Social Security system, not two [6][7].

When Canada considers you a resident

Canada doesn't tax by citizenship. It taxes residents on their worldwide income and nonresidents mainly on Canadian-source income. Citizenship and where you're "from" are generally irrelevant [8].

The CRA's main test is whether you have significant residential ties to Canada [1]:

• Significant ties: a home in Canada, a spouse or common-law partner in Canada, and dependants in Canada.
• Secondary ties: personal property like a car, social ties, Canadian bank accounts or credit cards, an Ontario driver's license and provincial health insurance (OHIP).

For most newcomers, residency starts the first day you live in Canada [1]. Income you earned before that day isn't taxed by Canada, though the CRA asks newcomers to report their foreign income for up to two years before they arrived, mainly so it can work out benefits and credits [1].

There's also a 183-day rule: someone who isn't a resident in fact but stays in Canada for 183 days or more in a calendar year is deemed resident for the whole year [8]. If both countries claim you as a resident, the treaty's tie-breaker rules look at where your ties are closer [8]. As a US citizen, though, the IRS taxes you either way.

Canadian and Ontario rates for 2026

You file one Canadian return (the T1), which includes your Ontario tax. The 2026 rates [2]:

For a sense of scale, CAD 58,523 is about USD 41,800 and CAD 258,482 is about USD 184,800. USD conversions use the Bank of Canada rate of 1.3989 CAD per USD (November 5, 2026) [11]. Ontario also adds a surtax at higher incomes and the Ontario Health Premium, both collected on the return. Out of your paycheck, you'll pay Canada Pension Plan (CPP) contributions and Employment Insurance premiums.

Key Canadian dates:

1. April 30: file your return and pay any balance owed for the previous year [1].
2. June 15: filing deadline if you or your spouse are self-employed [1]. Any balance is still due April 30.
3. Quarterly installments: required if you owe enough tax that isn't withheld at source.

How your US return fits in

Back in the States you filed once a year and that was that. Now you file with the IRS too, every year, reporting your worldwide income, including your Toronto paycheck.

Deadlines. The regular due date is April 15. US citizens living abroad on that date get an automatic two-month extension to June 15, but interest runs on any unpaid tax from April 15. You can ask for more time, to October 15, with Form 4868.

Foreign tax credit vs. the exclusion. You have two main ways to avoid double tax:

• The foreign tax credit (Form 1116) gives you a dollar-for-dollar credit for income tax you paid to Canada and Ontario.
• The foreign earned income exclusion (Form 2555) lets you exclude up to USD 130,000 for 2025 and USD 132,900 for 2026 of foreign earned income [4].

Because combined federal and Ontario rates are higher than US rates for most incomes, many Americans in Toronto find the foreign tax credit wipes out their US tax on Canadian wages and leaves unused credits to carry forward. Choosing the credit over the exclusion also leaves you with earned income for things like IRA contributions. A US expat tax preparer can check which works better for your situation. Our guide to the foreign earned income exclusion vs the foreign tax credit goes deeper.

Reporting your Canadian accounts. Two US reports matter:

• FBAR (FinCEN Form 114): required if your foreign accounts add up to more than USD 10,000 at any time during the calendar year [9].
• Form 8938: for taxpayers living abroad, required if specified foreign assets top USD 200,000 at year-end or USD 300,000 at any time (single), or USD 400,000 / USD 600,000 for married filing jointly [10].

Canada has a mirror-image rule: Form T1135 reports foreign property, including your US accounts and investments, once its total cost is over CAD 100,000 (about USD 71,500). It's easy to forget because it feels like "your own money back home."

The US–Canada tax treaty

The treaty doesn't let US citizens off the hook. Like all US treaties, it generally doesn't reduce the US taxes of US citizens [3]. That's the "saving clause" in action. What it does do is decide which country gets the first bite of certain income and protect some Canadian retirement savings.

RRSPs and RRIFs: protected

Under the treaty, the IRS lets Americans defer US tax on income building up inside an RRSP or RRIF until they take money out. Since 2014, that deferral is automatic, and Form 8891 is no longer required for any year [5]. You still list these accounts on your FBAR and, if you're over the threshold, Form 8938 [5].

TFSAs, FHSAs and RESPs: not protected

The Tax-Free Savings Account (TFSA) is the account every Canadian coworker will tell you to open. For Americans, it's a trap. The treaty doesn't recognize it, so the IRS taxes the interest, dividends and gains inside it every year, even though Canada doesn't. If the TFSA holds Canadian mutual funds or ETFs, those can be PFICs, with expensive US reporting on top. The newer FHSA and the education-focused RESP raise similar questions. Our guide to RRSP, TFSA and FHSA: what works for Americans walks through each one.

Social Security and the CPP: the totalization agreement

The United States and Canada have a Social Security agreement, in force since August 1, 1984 [7]. It does two things:

1. Prevents double contributions. Generally, you pay into the system of the country where you work. An employee sent to Canada temporarily by a US employer can stay on US Social Security for an assignment expected to last five years or less [7].
2. Covers the self-employed by residence. If you're self-employed and live in Canada, you pay into the CPP, not US self-employment tax. To prove it, get a certificate of coverage from Canada and attach a copy to your US return every year [6].

The agreement can also combine work credits from both countries so you qualify for benefits you'd otherwise miss. See self-employed abroad: US self-employment tax.

Don't forget the state

Some states, like California, Virginia and New Mexico, can keep treating you as a resident after you move to Toronto if you keep strong ties there. Break your domicile cleanly before you go. Our guide to state taxes after you move abroad covers which states are hardest to leave.

Taxes in two countries reward planning ahead. Before your first April in Toronto, have a US expat tax preparer check your situation, and ask other Americans what worked for them in our community group for Americans in Canada.

Sources

1. CRA: Newcomers to Canada (modified August 3, 2026)
2. CRA: Tax rates and income brackets for 2026
3. IRS: Tax treaties
4. IRS: Figuring the foreign earned income exclusion
5. IRS: Simplified procedures for Canadian retirement plans (IR-2014-97)
6. SSA: Agreement between the United States and Canada
7. SSA: US international Social Security agreements
8. PwC Worldwide Tax Summaries: Canada, individual residence (reviewed June 2026)
9. FinCEN: Report foreign bank and financial accounts
10. IRS: Do I need to file Form 8938?
11. Bank of Canada: Daily exchange rates

Keep reading

• RRSP, TFSA and FHSA: what works for Americans
• Banking in Canada as an American
• Foreign earned income exclusion vs foreign tax credit
• FBAR: reporting your foreign bank accounts