With an increasing number of Canadian citizens/residents working in the U.S. and an increasing number of U.S. citizens/residents working in Canada, it is important that all taxpayers familiarize themselves with the “Social Security Totalization” agreement.
The “Social Security Totalization” agreement came into effect in the 1980s, and is a way of providing social security protection for people who work in the U.S. or Canada. It also provides guidance in terms of which country should levy social security taxes so that taxpayers can decrease the risk of paying social security taxes on the same earnings for both the U.S. and Canada.
The agreement is applicable to all Canadians who spend significant working days in the U.S., and is applicable to all Americans who spend significant working days in Canada. The team of cross-border tax professionals at AG Tax has outlined the coverage and social security taxes that are covered in the agreement, and has also provided a brief description on how taxpayers can apply for a certificate of coverage.
Coverage And Social Security Taxes Outlined In The Social Security Agreement
•Canadians working as employees in the U.S. will normally be covered by the U.S. Additionally, Canadians working as employees in the U.S. will normally pay social security taxes only to the U.S.
•Americans working as employees in Canada will normally be covered by Canada. Americans working as employees in Canada will normally pay social security taxes only to Canada.
•Self-employed individuals will normally be covered by the country of residence. Self-employed individuals will normally be taxed only by the country of residence.
•Canadian citizens/residents who are temporarily transferred from Canada to the U.S. (or American citizens/residents who are temporality transferred from the U.S. to Canada) for work purposes will continue to receive coverage from their home country, provided that the term of work is five years of less. The size of the entity is irrelevant, and, if necessary, the five year term may be extended. The agreement eliminates double coverage so taxpayers pay taxes to only one system.
Applying for Certificate of Coverage under the Agreement
•Canadians working in the U.S. must provide a written request to the Social Security Administration in the U.S. pertaining to earnings.
• Americans working in Canada must provide a written request to the Canada Revenue Agency (CRA) pertaining to earnings.
•The employer will request the certificate of coverage for Canadian citizens/residents who are transferred from Canada to the U.S. (or American citizens/residents who are transferred from the U.S. to Canada) if the workers remain in the same firm. For example, Jane Smith is a Canadian resident and works for a Canadian law firm. The law firm transfers Jane to their office in the U.S. The Canadian law firm is responsible for requesting the certificate of coverage for Jane from the CRA. Once all forms are verified and approved, the CRA will issue a “Certificate of Coverage”.
Utilizing the social security agreement and requesting the certificate of coverage can be complex and will vary from case to case. It is highly recommended that taxpayers consult a cross-border tax professional when considering employment in a different country.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.