Often you owe nothing to the IRS, because Canadian income tax is credited against your US tax. You still have to file. US tax tends to appear on income Canada does not tax, such as TFSA earnings and some Canadian funds.
Lou is a tax-preparation tool, not a tax advisor. This article explains general rules for US citizens and green card holders who live in Canada. For advice on your situation, work with a qualified tax professional.
"Do I owe the IRS anything?" is the first question most Americans in Canada ask. The honest answer is: often not, but you still have to file to find out.
Filing and owing are different things#
The US taxes citizens and green card holders on worldwide income. A Canadian salary, Canadian interest and Canadian dividends all go on your Form 1040. Whether you then owe money is a second question.
Owing nothing does not remove the requirement to file. Your filing duty depends on your income, not on the tax you end up with.
Why the answer is often zero#
Canadian income tax is usually higher than US income tax on the same income. The US lets you subtract the Canadian tax you paid from your US bill with the foreign tax credit (Form 1116). If the Canadian tax is bigger, the US tax on that income drops to zero.
The credit uses the Canadian tax you actually owed for the year, from your T1 or Notice of Assessment. It does not use the withholding on your T4. Read more in the foreign tax credit guide.
Where US tax does show up#
The credit only works against income that Canada also taxed. US tax tends to appear in a few places:
- TFSA and FHSA earnings. Canada does not tax them. The US does, every year. See the TFSA guide.
- Canadian mutual funds and ETFs. They are generally treated as PFICs, which have their own harsh tax rules and Form 8621. See the PFIC guide.
- Lightly taxed Canadian dividends. The dividend tax credit can leave little Canadian tax to credit.
- Home Buyers' Plan and Lifelong Learning Plan withdrawals. Canada does not tax them as income. The US may.
- Income in a different category. The credit is figured by category of income, so tax paid on one kind cannot always cover another.
Penalties for not filing are not about tax owed#
Missing a form can cost money even when no tax is due. The FBAR and Form 8938 have their own penalties. If you have missed years, the IRS Streamlined Foreign Offshore Procedures exist for people whose failure was not willful. See catching up on missed years.
Where Lou fits#
Lou reads your Canadian slips and T1 on your device, converts the amounts to US dollars, runs the foreign tax credit, and tells you if any US tax is left. Anything it is unsure about is flagged for you instead of guessed.
Free to try. You pay only when you are ready to download your forms.