Maternity and Parental Benefits Across the Border: EI and QPIP for a Parent in the US, and US State Leave for a Parent in Canada

Canada pays maternity and parental benefits through employment insurance (and, in Quebec, through the Quebec Parental Insurance Plan); the United States has no federal paid leave and a patchwork of state programs. A Canadian parent who moves to the US during a leave can usually keep receiving EI maternity or parental benefits, because those benefits (unlike regular EI) are payable outside Canada, but the benefits become subject to non-resident withholding and US tax. An American parent who receives state paid family leave while resident in Canada is taxed on it in Canada. In both cases the treaty's social security article does not apply, because it excludes unemployment-type benefits.

Key takeaways

• EI maternity and parental benefits are payable to a claimant outside Canada (unlike EI regular benefits, which generally require presence and availability in Canada). A parent who moves to the US mid-leave can continue to receive them if eligibility is otherwise maintained.
• Taxation after the move: EI benefits paid to a non-resident are subject to 25% Part XIII withholding, and the treaty does not reduce it (Article XVIII(5) excludes unemployment benefits, and EI maternity and parental benefits are paid under the Employment Insurance Act); the benefits are US-taxable income with a foreign tax credit for the 25%.
• QPIP benefits follow the same pattern for Quebec parents: payable outside Quebec in some circumstances, subject to non-resident withholding, US-taxable with a credit.
• US state paid family leave (California, New York, New Jersey, Washington, Massachusetts, and others) is taxable federally as income; paid to a Canadian resident it is US-source other income, taxable in Canada with a foreign tax credit for any US tax; the treaty's other income article lets the US tax it as well.
• Employer top-ups are employment income sourced to where the work was performed under Article XV, taxable in the country of the employment and, for a resident, in the residence country with a credit.

EI maternity and parental benefits for a parent in the US

Service Canada pays maternity benefits (up to 15 weeks) and parental benefits (standard or extended) to eligible claimants; the benefits are not conditioned on being in Canada, so a parent who relocates during the leave continues to receive them. The parent must notify Service Canada of the move. Once the parent is a non-resident of Canada for tax purposes, the benefits are subject to 25% Part XIII tax withheld at source, and no Canadian return is filed for them (the withholding is final). The treaty's social security article excludes unemployment benefits, and EI maternity and parental benefits are paid under the same Act; the CRA applies the 25% rate.

The US treats the benefits as income (reported as unemployment compensation or other income on the 1040 for the resident period, converted at the average rate). The 25% Canadian withholding is a foreign tax credit on Form 1116 (general basket), which at most US marginal rates covers the US tax on the benefit.

A parent who is still a Canadian resident when the benefits are paid (for example, the family stays in Canada until the leave ends) is taxed in Canada as a resident and the benefits are not US-taxable if received before US residency began. The timing of the move relative to the benefit period changes the total tax.

QPIP

The Quebec Parental Insurance Plan pays maternity, paternity, parental, and adoption benefits to Quebec residents; a parent who leaves Quebec during the benefit period may continue to receive benefits in some circumstances (the plan requires Quebec residence at the start of the benefit period). Benefits paid to a non-resident are subject to Revenu Québec's non-resident withholding; the US treats them as income with a credit.

US state paid family leave for a parent in Canada

State programs pay a percentage of wages for a period after a birth or adoption, funded by payroll contributions. The benefits are taxable federally (the IRS treats state PFL as income; the state's own treatment varies). A parent who receives them while resident in Canada (an American who has moved to Canada during the leave, or a Canadian who worked in the US and returned) is a non-resident receiving US-source other income; the treaty's other income article allows the US to tax it, and the state program may or may not withhold. In Canada, the benefits are taxable as other income on the T1, with a foreign tax credit for any US tax.

Employer top-ups

Many Canadian employers top up EI benefits to a percentage of salary during leave; some US employers provide paid leave directly. A top-up is employment income under Article XV, sourced to the country where the employment was exercised (the top-up relates to the employment, not to work performed during leave; the CRA and IRS generally treat it as sourced to the employment's location). A Canadian employer's top-up paid to an employee who has moved to the US is Canadian-source employment income, taxable in Canada with non-resident withholding, and US-taxable with a credit.

Eligibility after a move

EI maternity and parental benefits continue for a parent outside Canada who remains eligible. EI regular benefits generally stop. A parent whose employment ends with the move (a resignation to relocate) may still be entitled to maternity and parental benefits based on the pre-move insurable hours. US state programs require the claimant to have worked in the state and paid into the program; a Canadian parent in the US on a new job will not qualify for state leave in the first year in most states.

Worked example

A Toronto marketing manager on a 12-month parental leave receiving $2,600 a month of EI moves to Miami on September 1 with her family, with four months of benefits remaining; her employer tops up to 80% of salary for the first six months (already ended).

• January to August. Canadian resident; EI and top-up taxed in Canada on the T1.
• September to December. Non-resident; Service Canada withholds 25% ($650 a month); $10,400 of EI reported on the US dual-status return's resident portion; $2,600 of Canadian withholding as a foreign tax credit.
• Net. US tax on $10,400 at her marginal rate is covered by the credit; small excess credit carries forward.
• Alternative. Had she delayed the move to January 1, all the benefits would have been taxed in Canada at her (low, on leave) resident rate with no US involvement.

Official sources

"Maternity benefits are for people who are away from work because they're pregnant or have recently given birth. [...] Parental benefits are for parents who are away from work to care for their newborn or newly adopted child." Maternity benefits are payable for up to 15 weeks. — Government of Canada, EI maternity and parental benefits, https://www.canada.ca/en/services/benefits/ei/ei-maternity-parental.html

"Benefits under the social security legislation in a Contracting State (including tier 1 railroad retirement benefits but not including unemployment benefits) paid to a resident of the other Contracting State shall be taxable only in that other State, subject to the following conditions: (a) a benefit under the social security legislation in the United States paid to a resident of Canada shall be taxable in Canada as though it were a benefit under the Canada Pension Plan, except that 15 per cent of the amount of the benefit shall be exempt from Canadian tax; and (b) a benefit under the social security legislation in Canada paid to a resident of the United States shall be taxable in the United States as though it were a benefit under the Social Security Act, except that a type of benefit that is not subject to Canadian tax when paid to residents of Canada shall be exempt from United States tax." — Canada-United States Tax Convention, Article XVIII(5), 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

Parental benefits are the one EI stream that follows a parent across the border, and the tax result depends on the move date. A parent who moves at the end of the leave pays Canadian resident rates on a low income; one who moves mid-leave pays 25% withholding on the balance and reports it in the US. When the family has flexibility, we look at the calendar.

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 treaty analysis on EI, QPIP, or state leave benefits, the departure-year returns in both countries, and the timing review for families moving during a leave. See cross-border pricing or book a call.