Moving from Canada -> USA tax implications

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
speer
Posts: 34
Joined: Thu May 19, 2016 11:56 am

Moving from Canada -> USA tax implications

Post by speer » Mon Aug 12, 2019 8:43 pm

Im a dual US/CA citizen. Currently an Ontario resident. I am self-employed (Amazon.ca FBA). I net $95,000 CAD per year. I have no US tax liability and harvest FTC's (Foreign Tax Credits) yearly. Considering moving to Michigan and trying to grasp how my taxes will change while continuing my Canadian business (its mostly online).

How I understand it is all Canadian income will be taxed by the CRA @ 25%. I will no longer be liable for CPP/EI (Not sure if I'll be liable for Ontario income tax). As a Michigan resident Ill be liable for state income tax, self employment taxes (FICA) @ 15.3% and federal income tax. I will still be able to harvest FTC's from the Canadian tax for use against some US tax owed. Can I only offset US federal income tax? Not sure.

Doing quick n' dirty math assuming different scenarios I get these numbers:

* Ontario resident, $95,000 CAD income, total tax: $26,455 CAD (includes federal, provincial, CPP/EI premiums)
* Canadian non-resident, $95,000 CAD income, total tax: $23,750 CAD (25% withholding tax rate) and Michigan resident, $72,000 USD ($95,000 CAD) income, total US tax: $21,082 USD ($27,932 CAD) (Federal Tax: $8,020 USD, FICA: $10,173 USD, MI State tax: $2888 USD)

Assuming the above, being a Michigan resident while continuing my business in Ontario my tax liability appears to increase by ~$1500 CAD (but it gets a lot worse). My $23,750 Canadian tax liability would be FTC's, but this would only offset my US federal taxes owed ($8,020 USD) and I would still be liable for state and FICA taxes. In other words, my tax liability would be: $23,750 CAD to Canada, and $13,062 USD to the US. In summary my yearly net tax liability would be $41,059 CAD ($23,750 CAD + $13,062 USD). Plus, I would also need to get private health insurance.

If I become a Michigander, is my thinking above correct? Would appreciate some others input. Would my tax liability really increase that much? Would I still be liable for Ontario income tax? Would my FTC's offset FICA or state income tax? Is there anyway I can make this work and/or smarter ways to do this? Its sad to see my tax liability would increase from $26,455 CAD to $41,059 CAD by moving to the states.
Last edited by speer on Tue Aug 13, 2019 2:32 am, edited 3 times in total.

Student2
Posts: 45
Joined: Fri Jul 13, 2012 8:26 pm

Re: Moving from Canada -> USA tax implications

Post by Student2 » Mon Aug 12, 2019 9:18 pm

You may have better luck getting a reply if you post on the Canadian forum https://www.financialwisdomforum.org/forum/index.php. (Dual citizen here, but my circumstances were much less complex than yours.) In my experience, you can sometimes find Canadians (or dual citizens) with information on cross-border money issues, but you will rarely find Americans with that experience. (We're all distributed along the border in Canada, whereas only a small portion of the US pop. lives near the border.)

Student2

Topic Author
speer
Posts: 34
Joined: Thu May 19, 2016 11:56 am

Re: Moving from Canada -> USA tax implications

Post by speer » Mon Aug 12, 2019 10:02 pm

Forgot about that forum, posted there as well thank you.

Topic Author
speer
Posts: 34
Joined: Thu May 19, 2016 11:56 am

Re: Moving from Canada -> USA tax implications

Post by speer » Tue Aug 13, 2019 6:47 pm

Update: Talked to an accountant and looks like being a non-resident of Canada I will not be subject to Canadian income or withholding tax because my business will not have a permanent establishment (its all amazon.ca sales, inventory stored in Amazon FBA located in Canada).

Im still surprised my income tax liability would increase though by becoming a Michigan resident. It thought taxes would be lower there.

Chris K Jones
Posts: 224
Joined: Sat Jan 20, 2018 6:54 pm

Re: Moving from Canada -> USA tax implications

Post by Chris K Jones » Tue Aug 13, 2019 6:57 pm

Factor in the cost of health insurance in the US while you are at it! Best wishes

Topic Author
speer
Posts: 34
Joined: Thu May 19, 2016 11:56 am

Re: Moving from Canada -> USA tax implications

Post by speer » Tue Aug 13, 2019 7:22 pm

Chris K Jones wrote:
Tue Aug 13, 2019 6:57 pm
Factor in the cost of health insurance in the US while you are at it! Best wishes
Oh 100%. I did call around and talked to a broker, they sell faith based plans, its about $140 USD per month and covers up to $250k per year to a max of $1 mil. High deductible, but this is all I need. Just dont want to go bankrupt.

Only caveat is they dont cover "sin" type accidents, ie, STD's, smoking cancer, abortions, etc.

obgraham
Posts: 1210
Joined: Mon Jan 28, 2013 7:30 pm

Re: Moving from Canada -> USA tax implications

Post by obgraham » Thu Aug 15, 2019 1:33 pm

No comment on the prime questions here, but just pointing out that if you are paying only $140 monthly for health care insurance you are getting a VERY bare bones coverage.

You'll be a cash payer for 90% of your medical encounters. Then you'll be charged top dollar, not what everyone else's insurance pays. Bang your head on the door and expect $5000 for that MRI!

Traveler
Posts: 788
Joined: Fri Aug 30, 2013 9:07 pm

Re: Moving from Canada -> USA tax implications

Post by Traveler » Thu Aug 15, 2019 5:28 pm

If I were you, I would seriously look into the limitations of a faith based plan. It is not insurance coverage. I'm guessing they will be more than happy to take your $140/month but might not be as happy to pay your medical bills should you need them to.

Post Reply