Living in Canada as a US citizen? Here's the tax filing you might be missing

Moving to Canada offers Americans an appealing mix of universal healthcare, stunning landscapes, and a welcoming culture. But there's one part of your new life that might catch you off guard: you're likely still required to file taxes with the IRS, no matter where you live or earn your income.

If you're a US citizen living in Canada and you've only been filing with the Canada Revenue Agency, you could be missing critical US tax obligations. These come with steep penalties. Understanding both sides of your tax responsibilities is essential. Many Americans abroad turn to professional US tax return preparation services to navigate these complex requirements.

Let's break down exactly what you need to know about filing US taxes from Canada and how to stay compliant with both countries.

Why US citizens in Canada must file with the IRS

The United States taxes its citizens on worldwide income, no matter where they live. This makes the US one of only two countries (the other being Eritrea) that follows citizenship-based taxation rather than residence-based taxation.

According to IRS guidelines, if you're a US citizen or resident alien living abroad, you must file a US federal tax return if your gross income exceeds certain thresholds. These are the same thresholds that apply to Americans living stateside. For 2025, single filers under 65 must file if their gross income exceeds $15,000.

This requirement doesn't disappear when you cross the border into Canada. Whether you've lived in Vancouver for two months or twenty years, your American citizenship comes with ongoing tax filing obligations.

Common misconceptions about expat taxation

Many Americans working in Canada assume one of the following:

• "I pay Canadian taxes, so I don't owe the US anything"
• "I don't earn US income, so I don't need to file"
• "The tax treaty between the US and Canada exempts me"

Unfortunately, none of these assumptions are correct. The US-Canada tax treaty helps prevent double taxation, but it doesn't eliminate your filing requirements. You must still report your worldwide income to the IRS each year, even if you ultimately owe nothing.

Your dual filing obligations explained

As an American living in Canada, you potentially have obligations to both tax authorities. Understanding what each country requires helps you avoid penalties and take advantage of available tax benefits.

US tax filing requirements for expats

Every US citizen working in Canada must consider these federal requirements:

The FBAR requirement catches many expats by surprise. If the combined balance of your Canadian bank accounts, RRSPs, TFSAs, and other financial accounts exceeds $10,000 at any point during the year, you must file this report by April 15 (with automatic extension to October 15).

Canadian tax obligations based on residency

Canada taxes based on residency status rather than citizenship. The CRA considers various factors to determine your residency, including:

• Your residential ties to Canada (home, spouse, dependents)
• The length of time you spend in Canada
• Your ties to other countries

If you're a Canadian resident for tax purposes, Canada taxes your worldwide income. Does Canada tax worldwide income? Yes, but only for residents. Non-residents pay tax only on Canadian-source income.

Most American citizens living in Canada full-time will be considered Canadian residents and must file a Canadian T1 return reporting global income.

How to avoid paying taxes twice

Filing taxes in the US and Canada doesn't necessarily mean paying taxes to both countries on the same income. Several tools exist to prevent double taxation.

Foreign earned income exclusion

The foreign earned income exclusion allows qualifying US expats to exclude up to $130,000 (for 2025) of foreign earned income from US taxation. To qualify, you must:

• Have foreign earned income
• Have a tax home in a foreign country
• Meet either the bona fide residence test or the physical presence test

The physical presence test requires you to be outside the US for at least 330 full days during a 12-month period. The bona fide residence test requires establishing genuine residence in a foreign country.

Foreign tax credit

If you pay Canadian taxes on income that's also taxable in the US, the foreign tax credit allows you to offset your US tax liability dollar-for-dollar with taxes paid to Canada. Since Canadian tax rates are generally higher than US rates, most American expats in Canada end up owing little to no US tax after applying this credit.

You'll claim this credit using Form 1116 attached to your US return.

US-Canada tax treaty benefits

The tax treaty between the US and Canada provides additional protections against double taxation. It clarifies which country has primary taxing rights on various income types. Key provisions include:

• Rules for taxation of employment income
• Treatment of pensions and retirement accounts
• Provisions for investment income like dividends and interest

The treaty doesn't exempt you from filing. It simply helps reduce or eliminate double taxation when you do file.

Retirement accounts deserve special attention

American taxes in Canada become particularly complicated when retirement accounts enter the picture. The treatment of Canadian registered accounts like RRSPs and TFSAs on your US return requires careful attention.

RRSP considerations

The good news is that the US-Canada tax treaty allows Americans to defer US tax on RRSP growth, similar to how a traditional IRA works. However, you must make a specific election on your US return (using Form 8891 or a treaty-based position statement) to claim this deferral.

Without this election, the IRS could treat your RRSP growth as currently taxable.

TFSA complications

The Tax-Free Savings Account presents more challenges. The US doesn't recognize the tax-free status of TFSAs, meaning:

• Growth within your TFSA is taxable on your US return
• The account may be classified as a foreign trust, requiring Form 3520 filing
• It may also be considered a Passive Foreign Investment Company (PFIC), triggering complex reporting

Many US expat tax professionals advise Americans living in Canada to avoid TFSAs entirely due to these complications.

What if you haven't been filing US taxes?

If you've been an American citizen living in Canada and haven't filed US returns, you're not alone. The IRS recognizes that many expats are unaware of their continuing obligations and offers a path to compliance.

Streamlined filing compliance procedures

The IRS Streamlined Filing Compliance Procedures allow qualifying taxpayers to become current without facing penalties. To qualify, you must:

• Certify that your failure to file was non-willful
• File three years of delinquent tax returns
• File six years of FBARs
• Pay any tax and interest owed

This program represents a real opportunity for Americans who have been living in Canada but haven't been filing US taxes from Canada as required.

Consequences of continued non-compliance

Choosing to ignore your US tax obligations carries serious risks:

• Failure-to-file penalties of 5% per month (up to 25%)
• FBAR penalties up to $10,000 per unreported account for non-willful violations
• Potential criminal prosecution in extreme cases
• Passport revocation for seriously delinquent tax debt

Getting your filings right

Filing American taxes in Canada requires attention to detail and knowledge of both tax systems. Here are practical steps to ensure compliance:

Gather documentation from both countries. Collect your Canadian T4 slips, investment statements, and any other income records. Include US-source income documentation if applicable.

Convert to US dollars. The IRS requires all amounts in US dollars. Use the average annual exchange rate or the rate on the transaction date for consistency.

Meet the right deadlines. US citizens abroad receive an automatic two-month extension, making their initial deadline June 15. However, interest on any tax owed still runs from April 15.

Consider professional help. Given the complexity of taxation for expats, working with a tax professional who understands both US and Canadian systems often proves worthwhile.

Moving forward with confidence

Living in Canada as a US citizen means embracing dual responsibilities. While filing taxes in both countries may seem burdensome, understanding your obligations and using available exclusions and credits typically results in minimal or zero US tax owed.

The key is staying compliant. File your returns on time, report your foreign accounts, and take advantage of the provisions designed to prevent double taxation. With proper planning, you can enjoy everything Canada offers while maintaining good standing with the IRS.

If you've fallen behind on your US filings, take action now. The streamlined procedures provide a clear path back to compliance. The peace of mind that comes with meeting your obligations is worth the effort.

Elodie Gagnon

Spécialiste des finances personnelles

Élodie est une spécialiste des finances personnelles et de l’éducation financière, dédiée à aider les Canadiens à mieux gérer leur argent. Elle est diplômée en économie de l’Université de Montréal et détient une maîtrise en finance comportementale de HEC Montréal. Avant de rejoindre HelloSafe, elle a travaillé dans le secteur bancaire et dans l’élaboration de contenus pédagogiques destinés au grand public. Chez HelloSafe, Élodie se consacre à la création de guides pratiques et comparatifs sur les assurances, les crédits, l’épargne et la gestion budgétaire, pour permettre à chacun de faire des choix éclairés et adaptés à sa réalité financière.