By Lesa 
As more American citizens make the move northward in search of new opportunities, understanding the nuances of cross-border taxation is more important than ever. This 2025 guide explains how U.S. citizens can properly prepare for filing U.S. tax returns in Canada while navigating the implications of the U.S.-Canada Tax Treaty.
Understanding Dual Tax Obligations Before Relocation
Unlike most countries, the United States imposes citizenship-based taxation. This means that American citizens are required to file U.S. tax returns annually, regardless of where they live in the world—even if they become tax residents of Canada.
Key considerations before moving to Canada:
- Determine your tax residency status under Canadian law
- Understand your ongoing obligation to the IRS
- Familiarize yourself with reporting requirements like FBAR and FATCA
These preliminary steps can drastically reduce the likelihood of double taxation and compliance issues.
Filing U.S. Tax Returns in Canada: What You Need to Know
Once you’ve settled in Canada, you’ll be subject to Canadian taxation as a resident. However, your U.S. tax obligations do not disappear. Americans living in Canada must still file IRS Form 1040 annually and may also need to submit additional forms including:
- Form 8938 (Statement of Foreign Financial Assets)
- FBAR (FinCEN Form 114) for foreign bank account reporting
- Form 2555 or 1116 to claim exclusions or foreign tax credits
Planning tip: Many expats use the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC) to reduce their U.S. tax liability. These tools help avoid double taxation but require accurate documentation.
Two Key Agreements for US-Canada Financial Ties
The US-Canada Tax Treaty is a key resource for preventing double taxation. It allocates taxing rights between the two countries and offers relief through:
- Tax credits for Canadian taxes paid
- Exemptions on certain types of income like social security
- Tie-breaker rules to determine residency in case of dual residency claims
Separately, the US-Canada Totalization Agreement addresses social security. It ensures your U.S. work history can help you qualify for Canadian (and future U.S.) social security benefits and prevents double social security taxes.
Expert insight: The treaty doesn’t eliminate the requirement to file in both countries. Instead, it helps coordinate which country gets primary taxing rights and ensures that tax is not paid twice on the same income.
Common Mistakes Americans Make When Moving to Canada
- Failing to report foreign bank accounts
- Neglecting to file Form 8621 for PFIC investments like Canadian mutual funds
- Missing deadlines for filing U.S. taxes abroad (typically extended to June 15)
- Assuming they’re exempt from U.S. taxes after becoming Canadian residents
These missteps can lead to steep penalties and audit risk.
Pre-Move Financial Checklist
Before crossing the border, American citizens should consider the following financial and tax actions:
- Notify the IRS of address changes using Form 8822
- Evaluate U.S. retirement plans and how they’ll be treated in Canada
- Avoid PFICs, which are heavily taxed under U.S. rules
- Consult with a cross-border tax expert to build a customized strategy
A proactive approach can save thousands in tax liabilities and ensure peace of mind.
Final Thoughts: Smart Planning Means Seamless Transition
Relocating to Canada as a U.S. citizen doesn’t mean cutting financial ties with the IRS. In fact, failing to understand your dual tax obligations could cost you significantly in fines, overpaid taxes, or lost benefits.
From filing U.S. tax returns in Canada to navigating the U.S.-Canada Tax Treaty, knowledge is your most powerful asset. Prepare early, file correctly, and seek expert guidance when needed.
To stay connected with other American expats in Canada and get tips on tax compliance, join the growing community at Expat Tax Online’s Facebook Group.
People Also Ask (PAA)
- Do I still have to file U.S. taxes if I live in Canada? Yes, U.S. citizens must file annual IRS returns regardless of where they live.
- Can the U.S.-Canada tax treaty prevent double taxation? Yes, through credits and exemptions.
- What is the deadline for filing U.S. taxes abroad? Typically June 15, with possible extensions.
Do I need to report Canadian bank accounts to the IRS? Yes, if the total exceeds $10,000 across all foreign accounts.