Tax Guide for US Citizens Returning from Canada

Posted on by Tax Partners
03
Feb

Overview of US Citizens Returning from Canada

Are you a U.S. citizen who has been living in Canada and is now planning to move back to the United States? Whether you're returning for career opportunities, family reasons, or a change in lifestyle, preparation is crucial for a smooth transition.

Relocating back to the U.S. involves more than just packing your belongings. It requires careful consideration of legal, tax, and financial implications. 

Understanding your U.S. tax obligations, reporting requirements, and access to healthcare can help you avoid complications and ensure a seamless move.

 

US Tax Obligations for Returning Citizens

 

Do US Citizens Living in Canada Have to File US Taxes?

Yes. Even while living in Canada, U.S. citizens must file federal tax returns annually, reporting their worldwide income to the IRS. The US-Canada tax treaty prevents double taxation, but U.S. taxpayers still need to report all income, including Canadian earnings.

 

How Do Taxes Change Upon Moving Back to the US?

Returning to the U.S. means adjusting to different tax rules. The key considerations include:

  • Foreign Tax Credits: If you've paid taxes in Canada, you may be able to claim a Foreign Tax Credit (Form 1116) to offset U.S. tax liability.
  • Reporting Canadian Assets: You may still have to report foreign bank accounts or investments under FBAR (FinCEN Form 114) and FATCA (Form 8938).
  • State Taxes: Moving back to a U.S. state means you may be subject to state income taxes, which were not applicable while living in Canada.

Given the complexity, consulting a tax professional specializing in expatriate taxation is highly recommended.

 

Reporting Canadian Financial Accounts to the US

 

Foreign Bank Account Reporting (FBAR)

If you had over $10,000 USD in foreign financial accounts at any time during the year, you must file an FBAR (FinCEN Form 114). This applies to:

  • Bank accounts
  • Investment accounts
  • Retirement accounts (such as RRSPs)

 

FATCA Reporting Requirements

Under FATCA (Foreign Account Tax Compliance Act), U.S. citizens must report foreign assets exceeding specific thresholds using Form 8938.

  • Single filers living in the US: Must report if total foreign assets exceed $50,000 at year-end or $75,000 at any point in the year.
  • Married filing jointly: The threshold increases to $100,000 at year-end or $150,000 at any time.

Failure to comply can result in hefty penalties from the IRS.

 

Tax Treaties and Avoiding Double Taxation

 

How the US-Canada Tax Treaty Helps

The US-Canada Tax Treaty prevents double taxation by allowing:

  1. Foreign Tax Credits (FTC): Offset U.S. taxes with Canadian taxes already paid.
  2. Tax Exemptions: Certain types of Canadian income may be exempt from U.S. taxation.
  3. Social Security Coordination: Ensures fair treatment of U.S. Social Security and Canada Pension Plan (CPP/QPP) benefits.

Understanding how to leverage tax treaty provisions can help reduce or eliminate unnecessary tax burdens.

 

Canadian Tax Obligations for Departing US Citizens

 

What Canadian Taxes Do You Need to File?

Before leaving Canada, U.S. citizens must complete final tax filings:

  • Final Canadian Tax Return: Report all income earned in Canada before departure.
  • Deemed Disposition Tax: Canada may treat certain assets as sold upon leaving, triggering capital gains tax.
  • Form T1161: Disclose foreign property worth more than C$25,000 when leaving Canada.

Failure to comply with departure tax obligations may lead to penalties. Consulting a Canadian tax expert can help ensure compliance.

 

Health Insurance for Returning US Citizens

The U.S. healthcare system operates differently than Canada’s public system. Returning citizens need to arrange health insurance coverage based on their situation:

  1. Employer-Sponsored Plans – If you have a U.S. job, employer-provided health insurance is often the best option.
  2. Health Insurance Marketplace – If you're self-employed or unemployed, the Affordable Care Act (ACA) marketplace offers coverage during open enrollment (Nov 1 – Dec 15).
  3. Medicare – If you’re 65 or older, you may qualify for Medicare benefits.
  4. Medicaid – If you have low income, Medicaid may be an option in certain states.

It is important to research state-specific healthcare options before returning to the U.S.

 

Transferring Retirement Savings to the US

 

Options for Handling Canadian Retirement Accounts

U.S. citizens returning from Canada often have Registered Retirement Savings Plans (RRSPs) or Registered Retirement Income Funds (RRIFs).

Here’s what you can do with these accounts:

  1. Leave them in Canada – No immediate tax consequences but requires continued reporting on FBAR and FATCA.
  2. Withdraw Funds – May trigger Canadian withholding tax (typically 25%) but could be offset using the US-Canada Tax Treaty.
  3. Transfer to a US Account – Complex and may involve double taxation. Consult a cross-border tax specialist before making a decision.

 

Shipping Personal Belongings to the US

Bringing personal items back to the U.S. requires compliance with Customs and Border Protection (CBP) rules.

  • CBP Form 3299: Declare household goods upon return.
  • Duties & Taxes: Some personal items may be subject to import duties.
  • Restricted Items: Certain foods, plants, and cultural artifacts may be prohibited.

Using a reputable international moving company can help navigate customs regulations.

 

Social Security and Retirement Benefits

 

Will My Canadian Work History Count for US Social Security?

Yes. The US-Canada Totalization Agreement allows work history from Canada to count towards U.S. Social Security eligibility.

If you have contributed to CPP or QPP, you may still be eligible for U.S. Social Security benefits. Check with the Social Security Administration (SSA) for specific eligibility rules.

 

Reestablishing Residency in the US

Checklist for Returning US Citizens

Returning U.S. citizens must take several steps to reestablish residency:

  1. Update IRS and Social Security records with your U.S. address.
  2. Reinstate or obtain health insurance based on your state of residence.
  3. Re-register to vote in your home state.
  4. Update driver’s license and vehicle registration.
  5. Transfer bank accounts and financial assets to U.S. institutions.
  6. Ensure all Canadian tax obligations are settled before leaving.

Reestablishing U.S. residency can take time, so early preparation is crucial.

 

Conclusion

Returning to the United States after living in Canada involves important tax, financial, and legal considerations. From tax reporting and healthcare coverage to retirement savings and customs requirements, planning ahead ensures a smooth transition.

U.S. citizens moving back should consult tax professionals to ensure compliance with both U.S. and Canadian tax laws while taking advantage of tax treaty benefits.

If you need help navigating tax obligations as a returning U.S. citizen, Tax Partners can assist you.

This article is written for educational purposes.

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.