Many things have changed in the past year due to the pandemic. One of such is the way we work. While remote work has been in practice for a while, it became prevalent last year.
With several remote job opportunities abroad, you may wonder if it’s possible to work in another country remotely from Canada. one of the common questions that Canadians have is, can I work remotely for a US company from Canada?
Yes, you can live in Canada and work remotely for a US company. However, you need to pay taxes. There are three ways to work remotely from Canada; as an independent contractor, foreign employee, or through a PEO. If you choose to be a foreign employee, you need to be familiar with the tax obligations.
Regardless of how you structure your remote job, you can’t avoid paying taxes in Canada. However, the structure can help you simplify the process and avoid double taxation. This article explains how you can work remotely in the US from Canada.
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Can a Canadian Work for a US Company?
Canada and the US have a long history of cooperation, which extends to employment. Many American companies opt to work with Canadians due to the several benefits from the relationship.
The exchange rate already makes it more profitable for Americans to employ Canadians, but that’s not the only reason. Canada also provides an experienced and expert job market to fill the needs of American companies.
To work physically in America as a Canadian, you’ll need to have a work visa unless you have dual citizenship. But remote work has become quite common, making it possible to work in the US from Canada without having a visa.
How To Work Remotely in Canada?
Due to the complex nature of working remotely in another country from Canada, there are several ways to structure your foreign employment.
1. Foreign Employee
This is when an American company directly employs you. In this case, the company will deduct your Canadian income taxes, but you have to file your taxes yourself.
It’s necessary to get the W-8 form to avoid double taxation. Without it, both the US and Canada will be charging you income taxes on the same wage.
2. Independent Contractor
Self-employed workers working with American clients don’t have to pay US taxes. However, they’ll still have to pay Canadian taxes and report all income to the Canada Revenue Agency.
3. Work through a Professional Employer Company (PEO)
A PEO is an intermediary employment agency that will act as your official employer in Canada. The agency will be the Employer of Record (EOR) in the country.
Thus, the agency will be leasing your services to the foreign employer and responsible for your tax remittances and other deductions.
Tax Obligations
As a Canadian working remotely for a US company, the major issue is tax payments.
Determining where and how to pay your taxes as a teleworker can be a little tricky, but you can easily understand it.
Here are the things you should know.
1. How to Pay Your Taxes
It is compulsory to report taxes must in Canadian dollars, which means that you’ll have to convert your earnings in American dollars to Canadian dollars.
The American company you’re working for will have to send you a W-2 form at the end of each year. This form will contain the whole amount you’ve earned that year in US dollars.
Converting this amount to Canadian dollars should be done based on the Bank of Canada exchange rate for that day you receive your income or the average rate for the annual exchange rate if you received the income on multiple occasions throughout the year.
You must report all foreign income on Line 104 of your T1 return. If your W-2 form includes US taxes deductions, retirement plans, benefits, or other deductions, you’ll need to report them on line 207 of the tax return.
US deductions on Canadian taxes might be tax-deductible under the Federal Foreign Tax Credit.
2. W-8BEN Form
This is a form that establishes that you’re a non-resident working for an American employee. You can download it from the IRS website and fill it out when taking the job. It exempts you from the 30% withholding tax compulsory in America because Canada has a tax treaty with the US.
Generally, the US tax laws require American companies to withhold income tax on employee payments. Therefore, as someone working remotely from Canada, you might find yourself a victim of double taxation as you’ll still have to pay income taxes in Canada.
Once you fill W-8 form, there’ll be no need to report your income and pay taxes in the US as long as you do it in Canada.
3. What To Do If You Don’t Get the W-2 form
Tax reporting is compulsory on all your income, even the one you earn from other countries. So, if you don’t get the W-2 form, you’ll still have to report your taxes even though your employee fails to do so. Failure to report taxes is a serious offense that comes with sanctions if the CRA discovers it.
Intentionally failing to report part of your income as tax means you’ll have to pay back the tax due when discovered, and you’ll also have to pay a minimum penalty of $100. I
f the amount you fail to report is higher than $100, you’ll have to pay 50% of the understated tax and might also pay overstated credits for the false information in your tax returns.
Is Work Visa Necessary?
You don’t need a work permit to work remotely in the US while staying in Canada.
The only time you’ll need any visa is when you’re planning to travel to the US for a work purpose, and the kind of work permit you’ll get will depend on how long you’re planning to stay, among other reasons.
In Conclusion
Remote employment has become prevalent due to the pandemic. While it used to be mostly within the same country, international remote employment has become a norm.
However, there are tax implications when working remotely in another country. As Canadian planning to work remotely in the US from Canada, knowing these rules can assist you when working remotely.