Keeping Your Canadian Job After Moving to the US: Who Withholds, Whether CPP Continues, and When the Employer Needs a US Payroll

The remote arrangement that lets an employee move south without changing jobs is administratively easy and tax-wrong by default, because the Canadian payroll keeps doing what it did while the facts underneath it have inverted. The employee's side first. Canadian tax: a non-resident of Canada is taxable in Canada on employment income only to the extent the duties are performed in Canada — an employee working from a US home office performs no duties in Canada, and the salary is not Canadian-source and not taxable in Canada, regardless of the employer's location or the currency of payment; the days the employee does work in Canada (a monthly visit to head office) are Canadian-source for those days, and the treaty then applies: remuneration for employment exercised in Canada by a US resident is exempt from Canadian tax where it does not exceed US$10,000 in the year, or where the employee is present in Canada for 183 days or fewer in any twelve-month period and the remuneration is not borne by a Canadian permanent establishment of the employer — the last condition failing for a Canadian employer (the remuneration is borne by the Canadian employer), so the practical exemption for the occasional-visit employee of a Canadian company is the US$10,000 threshold, above which the Canadian work days are taxable in Canada with a US foreign tax credit. US tax: the employee is a US resident taxed on worldwide income — the entire salary on the 1040 (and the state return), with no foreign tax credit because no Canadian tax should be imposed on US-performed work, and with the US's own withholding expectations, which the Canadian employer is not meeting. The Canadian employer's withholding: Regulation 102 requires withholding on remuneration paid to employees for services performed in Canada; for a non-resident employee performing services entirely outside Canada, there is no Canadian tax to withhold — the employer should stop Canadian income tax withholding on the US-performed remuneration (documenting the employee's non-residency and work location), or, where it continues out of caution, the employee recovers the over-withholding by filing a Canadian return showing no Canadian-source employment income (a refund that takes a season and a return the employee should not need). CPP and EI: CPP contributions are required for employment in Canada, and for employment outside Canada by a Canadian employer only where the employee is resident in Canada or the employer elects coverage under the rules for employees working abroad — a US-resident employee working in the US for a Canadian employer is generally not in pensionable employment for CPP purposes and not in insurable employment for EI purposes, so both should stop; the totalization agreement between Canada and the US assigns the employee to one country's social security system — an employee working in the US for a Canadian employer is generally covered by US Social Security unless the assignment is temporary (up to five years) and the employer obtains a certificate of coverage keeping the employee in CPP — a genuine choice for a defined-term secondment, and not one for the employee who has permanently relocated. The employer's US obligations, which is where the arrangement becomes a business decision: a Canadian employer with an employee performing services in a US state generally has US payroll obligations — federal income tax withholding, Social Security and Medicare (FICA) withholding and employer contributions, federal unemployment tax, and state income tax withholding, state unemployment insurance, and workers' compensation in the employee's state — requiring the employer to register with the IRS (an EIN — the EIN guide's phone route) and the state, run a US payroll, and issue a W-2; and the employee's presence may create state nexus for corporate income and sales tax and, depending on the employee's role and authority, a permanent establishment for federal purposes (a dependent agent concluding contracts — the treaty's business profits article), exposing the employer's US-attributable profits to US tax. Employers therefore choose among: running a US payroll directly (registrations, a payroll provider, the compliance — appropriate for employers with US ambitions or several US-based staff); using an employer of record or professional employer organization in the US to employ the individual on the Canadian company's behalf (a fee per employee that buys the compliance and, for many, the permanent-establishment insulation of the third-party employer); converting the relationship to an independent contractor arrangement (which changes the legal character of the work and must reflect reality — the contractor-classification guide — and which pushes the payroll tax to the individual as self-employment tax); or ending the arrangement. What most employers do for the first year — continue Canadian payroll, keep withholding Canadian tax and CPP, issue a T4 — is the wrong answer for both parties: the employee has Canadian tax withheld on income Canada can't tax, no US withholding on income the US does tax (an estimated-tax and penalty problem on the 1040), CPP contributions for a system they've left, and no Social Security credits for the system they've joined; the employer has unregistered US payroll exposure accruing with penalties. The fix is a conversation in the month of the move, not the following April: the employee's non-residency documented, Canadian withholding and CPP/EI stopped (or a certificate of coverage obtained for a genuinely temporary assignment), and the employer's US payroll route chosen and implemented.

Key takeaways

• The salary left Canada's tax base: employment income of a non-resident is taxable in Canada only for duties performed in Canada — US-performed work is not Canadian-source, and Canadian income tax withholding on it should stop (with a Canadian return to recover any over-withholding).
• Canadian visit days are Canadian-source: taxable in Canada above the treaty's US$10,000 threshold (the 183-day exemption fails when a Canadian employer bears the remuneration), with a US credit for those days' Canadian tax.
• CPP and EI stop: a US-resident employee working in the US is generally not in pensionable or insurable employment; the totalization agreement assigns them to US Social Security unless a certificate of coverage keeps a temporary (up to five-year) assignee in CPP.
• The US taxes all of it, and expects withholding: worldwide salary on the 1040 and state return, with estimated-tax exposure while no US employer withholds.
• The employer has US payroll obligations: federal and state withholding, FICA, unemployment, workers' compensation, registrations, a W-2 — and potential state nexus and permanent-establishment exposure from the employee's presence and role.
• Four employer routes: run US payroll directly, use an employer of record, convert to a genuine contractor relationship, or end the arrangement — decided in the month of the move, not the following April.

The move-month checklist for the remote employee and the Canadian employer

Employee: written notice of non-residency and US work location to the employer; Canadian withholding stopped on US-performed remuneration; CPP/EI stopped or a certificate of coverage arranged for a temporary assignment; US estimated tax payments started until US withholding exists; state residency and withholding understood. Employer: the work-location and non-residency documentation filed; the US route chosen (direct payroll with EIN and state registrations, employer of record, or contractor conversion with a genuine independent relationship); the permanent establishment and state nexus analysis run on the employee's role; the T4 for the final Canadian-resident period and the W-2 (or the employer of record's) for the US period. One month of administration prevents the year of Canadian over-withholding, US under-withholding, and unregistered payroll exposure that the default produces.

Worked example

A Toronto marketing agency's senior strategist moves to Chicago for family reasons and keeps her role remotely; she visits the Toronto office for a week each quarter. Default year (what happened first): Canadian payroll continued — Canadian tax and CPP withheld on her full C$140,000 salary, T4 issued, no US withholding. Her US return: worldwide income, about US$22,000 of US federal and Illinois tax with no withholding and an underpayment penalty; her Canadian return: no Canadian-source income except the four visit weeks (about C$11,000 — over the US$10,000 threshold, so taxable in Canada for those days), and a refund of nearly all the withholding, received six months later; her CPP contributions for the year bought her nothing she'll use, and her Social Security record shows a gap year. The agency: unregistered Illinois payroll and workers' compensation exposure, a state nexus question for corporate tax, and a permanent establishment analysis (she has no contract authority — clear). The fix, implemented in year two: her non-residency documented, Canadian withholding limited to the visit weeks' remuneration, CPP/EI stopped (permanent relocation — no certificate of coverage), and the agency engaging a US employer of record that employs her in Illinois on the agency's behalf — W-2, FICA, state withholding, workers' compensation, all handled for a monthly fee the agency judged cheaper than direct registration for one employee. Year two's returns: US withholding matched to US tax, a Canadian return only for the visit weeks, Social Security credits accruing. The arrangement was the same both years; the paperwork underneath it finally described the person doing the work.

Official sources

"Any employer, including a non-resident employer, is required to withhold amounts on account of the income tax liability of an employee in Canada even if the employee is likely to be exempt from tax in Canada because of a tax treaty." A non-resident employer certification "removes the requirement to withhold tax" for qualifying non-resident employers paying qualifying non-resident employees. — Canada Revenue Agency, Non-resident employer certification, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/rendering-services-canada/non-resident-employer-certification.html

Under Article XV(2), employment income is taxable only in the residence State if "(a) such remuneration does not exceed ten thousand dollars ($10,000) in the currency of that other State; or (b) the recipient is present in that other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period ... and the remuneration is not paid by, or on behalf of, a person who is a resident of that other State and is not borne by a permanent establishment in that other State." — Canada-United States Tax Convention, Article XV, https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997-2007.html

Practitioner note

The remote-employee move is the arrangement where the Canadian payroll keeps running on autopilot into a set of facts it no longer fits — Canadian tax withheld on income Canada can't tax, no US withholding on income the US does, and an employer accruing unregistered US payroll exposure. Our move-month protocol documents non-residency, stops the Canadian withholding and CPP, sizes the treaty's visit-day threshold, and gets the employer to a decision — direct US payroll, employer of record, or genuine contractor — before the first US paycheque, because the default costs both parties a year.

See also: For whether to sell the Canadian business before or after you move, see whether to sell the Canadian business before or after you move; and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the remote-employee relocation engagement — non-residency and work-location documentation, Canadian withholding and CPP/EI adjustment or certificate of coverage, treaty visit-day analysis, US estimated tax bridging, and the employer's US payroll route selection with nexus and permanent establishment review. See cross-border pricing or book a call.