30% Tax Withholding for Canadians Working in the U.S.
Author: Brad Howland
First Posted: Jan. 23, 2006
If you work on a temporary, self-employed basis in the United States, it's likely that 30% of your income will be withheld to cover nonresident's tax. Here's how to reduce or recover that tax.
For starters, you can have the amount of tax withheld at source reduced, by:
- Filing Form 8233 to claim an exemption from withholding under the tax treaty, and to have personal exemptions factored into the amount of tax that is withheld; or
- Entering into a withholding agreement with the Commissioner or his delegate as to the amount of withholding that is required.
The first option is probably the least complicated way to go for most people, but note that in the instructions to Form 8233 it states that the exemption from withholding is not available for public entertainers such as actors, musicians, artists, and athletes, and such individuals must seek their exemption by entering into a witholding agreement with the IRS.
Public entertainers have another option though: if they can convince their income payers that they are exempt from U.S. taxation under the Canada/US tax treaty, the payers might agree to refrain from withholding the tax. They would have to be pretty convincing though, as the income payer becomes liable if their income turns out not to be exempt.
Perhaps you can convince them by providing detailed itineraries for the year listing all engagements and amounts earned. If your income from activities as a public entertainer in the U.S. is under $15,000, it should be exempt under the treaty.
If you are not able to get the 30% withholding tax reduced, you can file Form 1040NR at the end of the year and recover part or all of this tax using personal exemptions, itemized deductions, or Canada/U.S. tax treaty provisions.
You will need to obtain an Individual Taxpayer Identification Number or ITIN. The ITIN application form is submitted when you file Form 1040NR.
Finally, if you can't get all of the withholding back on Form 1040NR, you can usually claim foreign tax credits on your Canadian return for the tax paid to the U.S.
Related Websites
Publication 515
Withholding of Tax on Nonresident Aliens and Foreign Entities