You Live in Canada. Your Paycheque Comes From the US.

Almost every Canadian working for a US company falls into one of three arrangements. Which one you are in determines your taxes, your benefits, and your paperwork. A surprising number of people do not know which one applies to them.

The Employer of Record route is the cleanest by a wide margin. A Canadian company legally employs you, runs proper Canadian payroll with tax, CPP, and EI deducted, issues you a T4, and often provides benefits. The US firm pays the EOR. You experience it as a normal Canadian job. If your employer offers this, take it.

The contractor route is the most common because it is the easiest for the US company to set up. It shifts all the administrative work and all the risk onto you, which is fine if you understand what you are taking on and price your rate accordingly.

This is the core principle, and once you have it the rest follows. Under the Canada–US tax treaty, employment income is generally taxable where the work is physically performed. If you sit at a desk in Canada, your employment income is Canadian-source and taxable in Canada — regardless of where your employer is incorporated or where the money comes from.

The other half of the question is whether you are a Canadian tax resident at all. That is not decided by a simple day count — the CRA looks primarily at residential ties. A home in Canada, a spouse or common-law partner in Canada, and dependants in Canada are the significant ties. Secondary ties include a driver's licence, health card, bank accounts, and personal property.

The 183-day figure people quote is a separate rule. If you are not otherwise a resident but you spend 183 days or more in Canada in a calendar year, you can be deemed a resident for the whole year. For most people reading this — who live in Canada full time — you are simply a Canadian resident and the day count never comes up.

• Canadian residents are taxed on worldwide income, wherever it comes from
• You report the income in Canadian dollars, converted at the Bank of Canada rate — the annual average rate is acceptable for regular income
• You file a normal T1 return. Employment income from a foreign employer without a T4 goes on line 10400 as other employment income
• If US tax was genuinely withheld and cannot be recovered, you claim a foreign tax credit so you are not taxed twice

Here is the situation people find themselves in. The US employer runs you through their normal payroll system, which assumes you are in the US. They withhold US federal income tax, Social Security, and Medicare. Meanwhile the CRA expects you to pay Canadian tax on the same income, and nothing has been withheld for Canada.

The result is money withheld for a government you do not owe it to, nothing withheld for the one you do, and a large Canadian tax bill in April.

1. 1Tell your employer, in writing, that you are performing all work from Canada and are a Canadian tax resident. Many payroll teams simply do not know.
2. 2Ask them to stop US federal income tax withholding on the basis that the income is Canadian-source under the treaty.
3. 3Ask them to request a certificate of coverage under the totalization agreement to stop Social Security and Medicare withholding.
4. 4File a US non-resident return (Form 1040-NR) to reclaim US tax that was withheld in error. You will need an ITIN if you do not have a US Social Security Number.
5. 5Set up your own Canadian tax instalments, since nothing is being withheld for the CRA.
6. 6Get a cross-border accountant for at least the first year. This is one of the situations where the fee genuinely pays for itself.

There is also a reason your employer may push back, and it is worth understanding. An employee working in Canada can create a permanent establishment for the US company, giving Canada a claim on some of the company's profits, and it creates a Canadian payroll withholding obligation for them. This is precisely why more companies are auditing where their remote staff physically sit, and why many now insist on an Employer of Record instead.

If you invoice the US company, you are self-employed in Canada. The rate looks great until you account for what you are now paying yourself.

What comes out of your rate

• Both halves of CPP. In 2026 that is 11.9% on net income between $3,500 and $74,600 — a maximum of $8,460.90 — plus CPP2 at 8% on income between $74,600 and $85,000, up to another $832
• No EI at all. Self-employed people can opt into EI special benefits for parental, sickness, and caregiving leave, but not regular unemployment benefits
• No employer health, dental, disability, or life coverage
• No employer RRSP match, no pension, no paid vacation, no paid sick days
• Quarterly tax instalments, since nobody is withholding for you

A reasonable rule of thumb is that a contractor rate needs to be meaningfully higher than an equivalent salary to break even — commonly 25% to 40% more, depending on how much you value the benefits you are giving up.

The GST/HST question

This is the piece almost everyone gets wrong in one direction or the other. Services exported to a non-resident client who is not registered in Canada are generally zero-rated, which means you charge 0% GST/HST on those invoices.

• Zero-rated is not the same as exempt. Zero-rated sales still count toward the $30,000 registration threshold
• The threshold is $30,000 in gross revenue over any rolling four consecutive calendar quarters — not a calendar year
• Once you cross it you must register, even though you charge your US client nothing
• Registering voluntarily can be worth it, because you can then claim input tax credits — recovering the GST/HST you pay on your laptop, software, internet, and home office costs

Deadlines and instalments

• Self-employed people file by June 15, but any tax owing is due April 30 — interest starts accruing on May 1
• Instalments are required if your net tax owing exceeds $3,000 in the current year and in either of the two preceding years ($1,800 in Quebec)
• Instalment due dates are March 15, June 15, September 15, and December 15
• Self-employment income counts as earned income for RRSP purposes, so it builds RRSP room at 18%

Everything above assumes you never leave Canada. The moment you physically work in the US — a conference, a team offsite, a week at head office — a portion of your income becomes US-source, and different rules apply.

The treaty provides two exemptions, and you only need to meet one of them:

1. 1Your US-source employment income for the year is $10,000 USD or less, or
2. 2You are present in the US for fewer than 183 days in any 12-month period, and your pay is not borne by a US employer or a US permanent establishment of your employer.

Separately, be careful about immigration status. Working remotely from Canada for a US employer needs no US work authorization at all, because you are not working in the US. Physically performing work in the US is a different matter and may require appropriate status. Tax rules and immigration rules are independent of each other, and complying with one does not mean you have complied with the other.

US employers often do not understand what a Canadian employee needs, and contractors get nothing at all. These are the gaps worth closing deliberately rather than discovering during an emergency.

Sooner or later someone will suggest you incorporate. Sometimes that is good advice. For a contractor with a single US client, it can be a serious mistake, and the reason has a name: the personal services business rule.

The CRA can look at a corporation and decide that, but for the corporation, you would reasonably be regarded as an employee of your client. If it makes that finding, your company is a personal services business, and the tax treatment is deliberately punitive.

The factors the CRA weighs are the same ones that separate an employee from a contractor generally: how much control the client has over how and when you work, whether you supply your own tools, whether you can profit or lose money on the arrangement, whether you can hire a substitute, and how integrated you are into the client's organization.

• Multiple clients substantially reduce the risk
• A written contract that genuinely reflects an independent relationship helps, but the CRA looks at reality over paperwork
• Supplying your own equipment, setting your own hours, and being able to subcontract all point toward genuine independence
• Talk to a Canadian accountant before incorporating, not after. Undoing it retroactively is not an option

For many Canadians in this position, a sole proprietorship is simpler, cheaper, and carries less risk. Incorporation makes most sense once you have several clients, income well above what you need to live on, and a real reason to defer tax inside the company.