The Cross-Border Digital Nomad: Where You Actually Owe Tax When You Work From Anywhere

Working from anywhere does not mean being taxed nowhere. A Canadian who spends the winter working from a Florida rental, an American who spends the summer working from a Muskoka cottage, and the employee who has no fixed address at all are each taxed by the country where they are resident on worldwide income, and by the country where they physically perform the work on the wages for those days. The employer has obligations in both. The three questions are always the same: where are you resident, where did you do the work, and does your presence create a taxable presence for your employer.

Key takeaways

• Residency first. Canada asks where your residential ties are; the US counts days under the substantial presence test. A nomad can be resident in both, in which case the treaty tie-breaker (permanent home, centre of vital interests, habitual abode) decides. A nomad can also be resident in neither, which is rarer and does not mean untaxed.
• Sourcing second. Employment income is sourced to where the work is physically performed. Days worked in the US are US-source; days worked in Canada are Canadian-source. Article XV exempts the non-resident country's share if under $10,000 or under 183 days with a non-resident employer and no PE.
• Employer third. A Canadian employer with an employee working in the US for extended periods has US payroll and possibly permanent establishment obligations; a US employer with an employee in Canada has the reverse.
• State tax. US states tax non-residents on wages for days worked in the state; some (New York, Connecticut) tax remote days for a state-based employer under a convenience-of-the-employer rule.
• Social security. The totalization agreement assigns coverage to one country; a certificate of coverage prevents double CPP and FICA.

Residency

A Canadian who keeps a home in Canada and works from the US for four months a year remains a Canadian resident (primary ties intact) and, after three winters, meets the US substantial presence test. The closer connection exception (Form 8840) or the treaty tie-breaker keeps them Canadian for tax purposes, but the wages for the US workdays are still US-source.

An American who works from Canada for a summer has not established Canadian residential ties and is not a Canadian resident, but days worked in Canada are Canadian-source, and 183 days or more in a calendar year makes them a deemed resident of Canada for the whole year unless the treaty tie-breaker applies.

A nomad with no fixed home who moves between countries every few months is resident wherever the ties analysis and day counts put them. Neither country accepts "nowhere." The CRA will look at where the person's centre of vital interests is; the IRS will count days. A US citizen is a US resident for tax purposes regardless of where they live.

Sourcing

Employment income belongs to the country where the work was performed, day by day. A $150,000 salary earned over 240 workdays with 60 in Florida has $37,500 of US-source income. Article XV exempts it from US tax if the employee is present in the US 183 days or fewer in any twelve-month period and the employer is Canadian with no US permanent establishment. Above 183 days, or if the employer has a US PE, the US taxes it on a 1040-NR with a Canadian foreign tax credit.

Self-employment income follows the same logic through Article VII: business profits are taxable in the other country only if attributable to a permanent establishment or fixed base there. A consultant working from a Florida rental for four months has no fixed base and is exempt in the US, but a consultant who rents a Miami office has one.

The employer

A Canadian employer whose employee works from the US for months at a time has US federal and state payroll obligations for the US workdays unless the employee files Form 8233 claiming the Article XV exemption, and the employee's presence can create a US permanent establishment if it becomes fixed (a home office used regularly) or exceeds 183 days on a project. A US employer with an employee in Canada has the mirror obligations: Regulation 102 withholding unless waived, and a Canadian PE risk. Most employers address this with a remote-work policy that caps days abroad below the thresholds, or an employer of record in the other country.

State tax

States tax non-residents on wages for days worked in the state, with their own thresholds (some have none). A few apply a convenience-of-the-employer rule that treats a remote employee of a state-based employer as working in the state even when they are elsewhere, unless the remote work is required by the employer; New York is the most aggressive. A Canadian working remotely for a New York employer from Toronto can face New York tax on all wages under this rule, with the treaty offering limited relief because states are not bound by it.

Social security

The US-Canada totalization agreement assigns a worker to one country's system based on where they normally work, and a certificate of coverage from that country exempts them from the other's contributions for temporary assignments of up to five years. Without it, both CPP and FICA can apply to the same wages.

Worked example

A Toronto software engineer employed by a Toronto company works from a Fort Lauderdale rental from November to March each year (five months, about 100 workdays) and from Toronto the rest of the year.

• Residency. Canadian resident (home, family, ties in Toronto). US substantial presence test: 150 days a year, met after three years; Form 8840 filed annually to claim the closer connection exception.
• Sourcing. About 42% of wages are US-source. Article XV: presence under 183 days in any twelve-month period, Canadian employer, no US PE if the rental is not a fixed place of business of the employer. Exempt in the US; Form 8233 filed with the employer.
• Employer. No US payroll registration if the exemption holds; the employer should document that the rental is the employee's choice, not a company office.
• Canada. All wages taxed in Canada as a resident.
• Florida. No state income tax; no state issue.

Move the rental to New York and the analysis changes: New York taxes the US workdays as a non-resident, and the employer may need New York payroll registration.

Official sources

"You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least: 31 days during the current year, and 183 days during the 3-year period that includes the current year and the 2 years immediately before that." — Internal Revenue Service, Substantial Presence Test, https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test

"Subject to the provisions of Articles XVIII (Pensions and Annuities) and XIX (Government Service), salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State." — Canada-United States Tax Convention, Article XV(1), https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html

Practitioner note

The nomad myth is that presence without a lease is presence without tax. Every day worked in the other country is sourced there, every day present there counts toward its residency test, and the employer's exposure grows with the employee's. We give nomad clients a day budget for each country and a form for each threshold: Form 8840 for residency, Form 8233 for wages, a certificate of coverage for social security.

See also: Planning a move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares the residency analysis in both countries, the day-count and sourcing schedule, and the employer's payroll and permanent establishment review for cross-border remote workers. See cross-border pricing or book a call.