The TN visa is a popular option for Canadian professionals seeking employment in the United States. Created under the North American Free Trade Agreement (NAFTA) and continued under the United States-Mexico-Canada Agreement (USMCA), this visa allows Canadians to work in the US in pre-approved professions. Unlike other visas, the TN visa rules do not require employer sponsorship for a green card, making it an attractive choice for short- or long-term employment.
However, while the TN visa provides a pathway to employment, it also introduces complex tax implications that Canadians must carefully consider. Working under a TN visa may create tax filing obligations in both the US and Canada, depending on residency status and income sources.
Eligibility for the TN Visa
To qualify for a TN visa, a Canadian must:
- Be a citizen of Canada (permanent residents are not eligible).
- Have a job offer from a US employer in a qualifying professional occupation (e.g., accountant, engineer, lawyer, medical professional, scientist, etc.).
- Possess the required educational credentials or professional licenses.
- Work in a role that is listed under the USMCA-approved professions.
The TN visa is typically granted for up to three years and can be renewed indefinitely provided the individual continues to meet the requirements.
Important TN visa rule: TN visa holders cannot be self-employed in the US. Their employment must remain tied to a sponsoring employer
TN Visa Tax Residency Considerations
One of the key factors that affects a TN visa holder’s tax situation is their tax residency status in both Canada and the United States. Unlike a work visa, which solely determines employment eligibility, tax residency determines where an individual must report and pay taxes.
US Tax Residency Rules
A Canadian on a TN visa may be considered a US tax resident if they meet the Substantial Presence Test (SPT). This test evaluates the number of days spent in the US over a three-year period, using the following formula:
- All days present in the current year
- 1/3 of the days in the previous year
- 1/6 of the days in the year before that
If the total equals or exceeds 183 days, the individual is considered a US tax resident for that year, meaning they must report worldwide income on their US tax return.
Canadian Tax Residency Rules
Canada considers an individual a tax resident if they have significant residential ties, such as a home, spouse, or dependents in Canada. Even if a TN visa holder spends most of the year in the US, they may still be considered a Canadian tax resident if they maintain strong ties to Canada.
For those with fewer ties, Canada may classify them as deemed non-residents, meaning they are only subject to Canadian tax on Canadian-sourced income. However, determining residency can be complex, especially for TN visa holders who frequently travel between both countries.
US Tax Obligations for TN Visa Holders
If a TN visa holder meets the substantial presence test and is classified as a US tax resident, they must:
- File a US tax return (Form 1040): Report worldwide income, including Canadian employment income, rental income, and investment earnings.
- Pay Social Security and Medicare taxes: Unlike other visa holders, TN visa workers are subject to payroll taxes in the US.
- Report foreign financial accounts: If the aggregate value of foreign accounts exceeds $10,000 at any time during the year, the individual must file a Foreign Bank Account Report (FBAR) with FinCEN.
- File Form 8938 (FATCA reporting): If foreign financial assets exceed certain thresholds, additional reporting may be required.
These obligations make TN visa tax filing in the US more complex than simply reporting salary.
If the individual does not meet the substantial presence test, they can be classified as a nonresident alien and file Form 1040-NR, which generally requires reporting only US-sourced income.
Canadian Tax Obligations for TN Visa Holders
If a TN visa holder remains a Canadian tax resident, they must:
- File a Canadian tax return (T1 General): Report worldwide income, including US wages, rental income, and business profits.
- Pay Canadian tax on foreign income: Canada taxes worldwide income, but foreign tax credits can help offset double taxation.
- Report foreign property: If the value of foreign investments exceeds CAD 100,000, individuals must file Form T1135 (Foreign Income Verification Statement).
For those who become deemed non-residents, they must still file a Canadian return for any income earned in Canada but are otherwise exempt from reporting worldwide income.
Tax Treaty Considerations & Avoiding Double Taxation
The Canada-US Tax Treaty plays a key role in handling TN visa tax obligations. It helps prevent double taxation by outlining which country has the primary right to tax specific types of income and providing tax credits.
- Foreign Tax Credits: TN visa holders can claim a foreign tax credit on their Canadian return for US taxes paid, and vice versa if they are US tax residents.
- Tie-Breaker Rules: If residency is disputed, the treaty has a series of tests to determine primary tax residency, considering permanent home location, center of vital interests, habitual abode, and nationality.
Can TN Visa Holders Start a Business or Invest in Real Estate in the US?
Starting a Business in the US
A TN visa does not permit self-employment or starting a business in the US. The visa is strictly tied to employment with a US employer. However:
- TN visa holders can invest in a US business but cannot actively operate or manage it.
- They cannot work as an independent contractor.
If a TN visa holder wants to start a business, they may need to switch to an E-2 investor visa or another visa category that allows entrepreneurship.
Investing in Real Estate in the US
TN visa holders can buy property in the US for personal or investment purposes. However, taxation of rental income or capital gains must be considered:
- Rental Income: Subject to US taxation; tax treatment depends on residency status.
- Capital Gains Tax: US taxes apply when selling the property, and tax treaties help determine if Canadian taxes are also owed.
TN Visa Tax Benefits
While most discussions focus on obligations, there are also several TN visa tax benefits that Canadians should be aware of:
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Foreign Earned Income Exclusion (FEIE): If you qualify under certain conditions, you may be able to exclude a portion of your US income from US taxation when filing from abroad.
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Foreign Tax Credits: Canadians on TN visas who remain Canadian tax residents can often offset Canadian tax with credits for US tax paid, reducing the chance of double taxation.
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Deductible Moving Expenses: In some cases, cross-border moves for employment under a TN visa may allow certain deductions.
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Treaty-Based Exemptions: The Canada-US Tax Treaty provides exemptions for specific income types, such as pensions or government benefits, which can lower overall tax liability.
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Retirement Account Opportunities: Working in the US allows TN visa holders to contribute to US retirement plans (such as 401(k)s), which may offer tax deferral benefits in both countries.
These TN visa tax benefits demonstrate that with proper planning, working in the US can provide not only professional opportunities but also potential financial advantages.
FAQs About TN Visa Tax Rules
Do TN visa holders have to pay US taxes?
Yes. TN visa holders must file a US tax return and pay taxes on US-sourced income. If they qualify as US tax residents under the Substantial Presence Test, they may also need to report worldwide income.
Do TN visa holders pay Social Security tax?
Yes. In most cases, TN visa holders must pay Social Security and Medicare (FICA) taxes on their US wages, just like US citizens and permanent residents. These payroll taxes are withheld by the employer. However, if covered by Canada’s social security system and exempt under the Canada-US Totalization Agreement, some TN visa holders may avoid double contributions.
Can TN visa holders avoid double taxation?
Yes. The Canada-US Tax Treaty provides protections, including foreign tax credits and residency tie-breaker rules, to help prevent the same income from being taxed twice.
Are there TN visa tax benefits?
Yes. Benefits may include access to US retirement accounts (like 401(k)s), eligibility for foreign tax credits, and possible treaty-based exemptions depending on income type.
Can TN visa holders invest in US real estate?
Yes. TN visa holders are allowed to purchase property in the US, earn rental income, and realize capital gains, though they must report and pay taxes on this income in the US and possibly in Canada.
Can TN visa holders receive a 1099 instead of a W-2?
No. TN visa holders are not allowed to work as independent contractors and cannot legally receive a Form 1099 for services performed. Their income must be reported on Form W-2 by their employer. Receiving a 1099 could violate TN visa rules and jeopardize status.
What are employer obligations for TN visa workers regarding taxes?
US employers hiring TN visa holders must withhold federal and state income taxes, Social Security, and Medicare taxes, and issue a Form W-2 at year-end. Employers are also responsible for ensuring that employment aligns with TN visa rules, meaning the worker is not misclassified as an independent contractor.
What are the tax implications of moving from Canada to the US on a TN visa?
When moving from Canada to the US under a TN visa, individuals may face a departure tax if they sever Canadian residency and own certain appreciated assets. They must also file a final Canadian return (reporting worldwide income up to the date of departure) and then begin filing US tax returns. Cross-border tax planning is essential to minimize double taxation.
Canadians moving to the US on a TN visa must be aware of their tax obligations in both countries. They may be subject to US income tax, FICA taxes, and various reporting requirements while potentially still owing Canadian taxes. The US-Canada Tax Treaty helps mitigate double taxation, but proper tax planning is crucial. While TN visa holders cannot start a business in the US, they can invest in real estate or passive ventures. Consulting with a tax professional experienced in cross-border taxation ensures compliance with both US and Canadian tax laws.
