How Canadian Residents Receiving US Social Security Are Taxed

What if you are a Canadian resident who receives US Social Security benefits?

Let’s take the case of our reverse snowbird Emily, a Canadian citizen who has been living and working in the US for the last 30 years and has fully qualified for US social security benefits. Instead of retiring in sunny Florida like a lot of Canadians choose to do, Emily wants to retire back in the frozen tundra otherwise known as Edmonton.

Is Emily crazy to retire in Canada?

Yes, if the weather is the only factor you consider.

But from a tax perspective, the US-Canada tax treaty is actually very favorable to Emily when it comes to the taxation of her US social security benefits when she moves back to Canada.

How so? Well, to begin with, Emily will not have to pay any US tax on the US social security benefits she receives in Canada. In order words, Emily does not need to pay a US withholding tax or even US income tax on the social security income received.

But wait. What if Emily is a US citizen living in Canada? Luckily for Emily, even a US citizen is treated the same way as other residents of Canada when it comes to the taxation of US social security benefits.

Namely, the US social security benefits will be subject to tax only in Canada.

What this means is that Emily will include in her Canadian taxable income only 85% of the US social security benefits she receives. For those of you doing the math, the other 15% will be exempt from tax in Canada.

How much Canadian tax, if any, Emily will need to pay on her US social security benefits will depend on her Canadian tax circumstances. Sure, it may not be as low as the tax she would pay if she retired in Florida but the additional tax may not be that much of a burden.

So, while you can argue Emily is crazy to retire back in Canada, at least the tax consequences applicable to her US social security benefits shouldn’t be a major deciding factor in the argument.

The tax professionals at Gedeon Law & CPA are always available to help with exempting US social security benefits from US tax and properly filing US and Canadian tax returns for taxpayers who receive social security benefits in both countries.

Gedeon Law & CPA
5155 W. Rosecrans Ave., Suite 217
Hawthorne, CA 90250
O (424) 254 – 9529


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