Expenses and Tax Considerations for U.S. Citizens Working for Your Business

by Thom Tracy

2 min read

If you cannot find a Canadian to fill a post at your company, you may need to look past the border and hire someone from the vast pool of American workers to the south. Before expanding your search to include Americans, you need to understand the potential costs and tax considerations of hiring, recruiting, and employing U.S. citizens.

Immigration and Work Permits

If you are hiring a foreigner from America or any other country, you need to ensure they have the correct work permit in place. In most cases, this means they need to be a permanent Canadian resident or have an unexpired open work permit that is not tied to a specific employer. However, if you want to expand your search to Americans or workers from any other country who do not yet live in Canada, you may want to check out the Express Entry Pool. This service is free to use and gives you access to a pool of skilled foreign professionals and tradespeople. If you see a prospect you like, you can extend a job offer, and immigration officials will invite that individual to complete the rest of the immigration process. In this case, you simply need to budget for the time this process takes. Alternatively, if you only need an employee for a short period of time, you may want to turn to the International Mobility Program. Through this program, you can sponsor workers to come to Canada on a temporary basis. The process takes as little as a few weeks, and as of 2016, the fee is $230.

Source Deductions

In most cases, when you employee an American, you should withhold Canadian federal income tax, provincial income tax, Employment Insurance premiums, and Canada Pension Plan premiums just as you do for Canadian citizens. However, if your employee continues to be a resident of the United States, this individual may apply for an exemption of withholding income tax from their pay cheque. For example, if your employee lives on the American side of the border and commutes to work in Canada every day, he or she may be able to request an exemption of Canadian income taxes.

Employee Education

If you want to make working in Canada easier on your American employees, you may want to provide them with information about their expectations and legal requirements. In most cases, these workers must submit an annual tax return to both the governments of Canada and the United States. Canada requires residents (people living in Canada) to file returns, while the United States requires most citizens to file returns. However, to ensure your employees don’t pay double tax on their earnings, you should let them know about the American-Canadian tax treaty. While it’s not critical to read this treaty in its entirety, it’s important for your employees to understand the broad strokes. Namely, if they are a resident of Canada, they should pay taxes in Canada, and they should claim a credit for this amount on their American tax return.

References & Resources

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