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Avoiding Double Social Security Coverage

Author: Brad Howland
First Posted: Dec. 30, 2008; Last Update: Aug. 17, 2021

Self-employed U.S. Citizens residing in Canada can find themselves paying a lot more tax than they should, due to the need to pay into both the Canada Pension Plan (CPP) and U.S. Social Security on their earnings. Fortunately, there is a way to avoid this problem with a little paper work.

The United States and Canada have agreed to eliminate dual coverage under each country's social security systems for the same income. If you are up for it, you can read all about it in the Office Consolidation of the Agreement Between the Government of Canada and the Government of the United States of America with Respect to Social Security.

If you don't want to wade through all that legalese, the important part is summarized neatly in IRS Publication 54 Tax Guide for U.S. Citizens and Resident Aliens Abroad (available in pdf or html format):

Exemption From Social Security and Medicare Taxes
The United States may reach agreements with foreign countries to eliminate dual coverage and dual contributions (taxes) to social security systems for the same work...As a general rule, self-employed persons who are subject to dual taxation will only be covered by the social security system of the country where they reside.

To exempt your earnings from U.S. Social Security Tax, you need to obtain a certificate of coverage from Canada Revenue Agency stating that your earnings are covered under CPP. The form CRA provides for this purpose is Form CPT56, Certificate of Coverage Under the Canada Pension Plan Pursuant to Article V of the Agreement on Social Security Between Canada and the United States. Download the form, fill it out, and send it to CRA at the following address:

Canada Revenue Agency
CPP/EI Rulings Division
Social Security Unit
Place de Ville, Tower A
320 Queen St, Floor 7
Ottawa, ON  K1A 0L5

Form CPT56 can also be submitted online or by fax. See the instructions included with the form.

The office that handles these requests might need you to provide copies of your Canadian tax returns, proving that you do indeed pay into CPP, especially if you are a new Canadian resident. You could proactively send copies in with your original CPT56, just to speed things along.

Once you have the certified CPT56 form, send it to the IRS attached to your U.S. income tax return. You apparently only need to do this once, but of course its good sense to keep copies of the form in your files, in case you need to provide it again. Congratulations: you can now write "exempt, see attached statement" and enter "nil" on the self-employment tax lines of your Form 1040!

The IRS provides a similar form for people in the reverse situation, with earnings that should be exempt from CPP and covered under U.S. self-employment (Social Security) tax. According to Publication 54, you can request a certificate of coverage here.

Related Websites

Social Security Administration
Canada Pension Plan

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