TN Visa Taxes Explained

Updated on April 9, 2024

If you’re a Canadian or Mexican professional working in the United States under the TN visa category, it’s essential to understand your tax obligations. Navigating the U.S. tax system can be complex, but with the right knowledge and preparation, you can ensure that you remain compliant and avoid potential penalties. In this blog post, we’ll explore the key aspects of TN visa taxes and provide helpful tips for managing your tax responsibilities.

30 Second Recap:

TN visa holders must understand their tax obligations in the U.S. They are required to pay federal income tax and may be subject to state income tax. Social Security and Medicare taxes apply if their employment exceeds six months. Tax treaties between the U.S., Canada, and Mexico can impact tax obligations. Keeping accurate records and working with a tax professional can help ensure compliance with U.S. tax laws.

TN Visa Tax Obligations Explained

If you’ve worked in both Canada and the US in the same year, navigating your tax obligations can be complex. Here’s what you need to know:

Factual Residency in Canada

If you were working in Canada for part of the year and in the US for the remainder, you are likely considered a factual resident of Canada. As one user explains, “I think you are considered a factual resident of Canada and you must report all world income (including USA income) on your CRA tax return. If you paid taxes to IRS (in USA), you would report that to CRA to claim tax credits to reduce your Canadian tax bill by that much.”

Substantial Presence Test and US Tax Obligations

Even if you don’t meet the substantial presence test (being in the US for less than 183 days over 3 years), you may still have to pay US taxes on your US-sourced income. “You still pay all applicable taxes in USA (for the income made in USA), including federal/state income taxes, social security and Medicare. This will only apply to the income made in USA if you are choosing to be a non-resident of USA for tax purposes,” clarifies one user.

First Year Choice Option

You have the option, but not the obligation, to choose to be a tax resident of the USA even if you don’t meet the substantial presence test. This is called the “first year choice.” However, as one user points out, “I don’t see why someone would choose this but it depends on your personal tax circumstances.”

Declaring Canadian Income on US Taxes

When filing your US taxes, you need to declare your Canadian income for the year, converted to USD. However, as one user notes, “You need to declare your Canadian income for the year (converted to USD), but you get a foreign income exclusion so you don’t have to pay taxes on those.”

Staying in Canada for Healthcare

If you want to remain a resident of Canada for free healthcare, you may need to pay taxes to Canada as well. However, as one user warns, “You are required by law to inform your provincial health body if you are leaving the province to work elsewhere. It doesn’t matter if you leave the country or not.”

Seeking Professional Advice

Given the complexity of cross-border tax situations, it’s highly recommended to consult with a professional. “There’s a lot of choices you can make, and you really should speak to an accountant. I went to Google maps and searched ‘cross border accountant’ and lots came up. Seriously, just pick the first one and give them a call,” advises one user.

When working in both Canada and the US, it’s crucial to understand your tax obligations, residency status, and the implications of staying a resident of Canada for healthcare purposes. Seeking professional guidance can help ensure you comply with all necessary tax requirements in both countries.

Federal Income Tax

As a TN visa holder, you are required to pay federal income tax on your U.S. earnings. The amount of tax you owe will depend on your income level and filing status. You’ll need to file a federal income tax return each year, typically due on April 15th, using Form 1040-NR (Non-Resident Alien) or Form 1040 (if you meet the substantial presence test).

State Income Tax

In addition to federal income tax, you may also be subject to state income tax, depending on the state in which you work. Each state has its own tax laws and rates, so it’s essential to research the specific requirements for your state of employment. Some states, such as Texas and Florida, do not have a state income tax.

Social Security and Medicare Taxes

As a TN visa holder, you are generally exempt from U.S. Social Security and Medicare taxes if you are employed by a U.S. employer and your employment is expected to last less than six months. However, if your employment exceeds six months, you may be subject to these taxes. Your employer will withhold these taxes from your paycheck, and you’ll need to report them on your income tax return.

Tax Treaties

The United States has tax treaties with both Canada and Mexico, which can impact your tax obligations. These treaties are designed to prevent double taxation and provide certain benefits to residents of the treaty countries. For example, the U.S.-Canada tax treaty allows Canadian residents to claim a foreign tax credit for U.S. taxes paid, which can help offset their Canadian tax liability. It’s important to consult with a tax professional to determine how these treaties apply to your specific situation.

Tax Preparation and Filing

To ensure that you comply with U.S. tax laws, it’s crucial to keep accurate records of your income and expenses throughout the year. Consider working with a tax professional who specializes in international tax issues to help you prepare and file your tax returns. They can also provide guidance on tax planning strategies and help you take advantage of any available deductions or credits.

Final Thoughts

Understanding TN visa taxes is an essential part of working in the United States as a Canadian or Mexican professional. By familiarizing yourself with federal and state income taxes, social security and Medicare taxes, and relevant tax treaties, you can ensure that you meet your tax obligations and avoid potential penalties. Remember to consult with a tax professional for personalized advice and guidance tailored to your unique situation. With the right knowledge and preparation, you can confidently navigate the U.S. tax system as a TN visa holder.

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Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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