Moving from Canada to Pennsylvania: A Flat 3.07%, Tax-Free Retirement Income, and Local Wage Taxes

Pennsylvania's two major metros each have a Canadian corridor: Philadelphia for pharma, finance, and universities; Pittsburgh for AI, robotics, healthcare, and energy engineering. The tax picture is a flat 3.07% state income tax, local earned income taxes in every municipality (3.735% in Philadelphia, 3% in Pittsburgh, 1% in most suburbs), a full exemption for retirement income after retirement age, an inheritance tax rather than an estate tax, and a state income tax system that does not start from federal AGI.

Key takeaways

• Pennsylvania's flat state income tax is 3.07%.
• Local earned income taxes: Philadelphia's Wage Tax is 3.735% on residents (the July 2026 rate, stepping down annually); Pittsburgh's is 3%; most suburbs charge 1%.
• Pennsylvania exempts most retirement income received after retirement age, including pensions and retirement account distributions.
• Sales tax is 6% statewide, 8% in Philadelphia, 7% in Allegheny County.
• No estate tax, but an inheritance tax of 4.5% to lineal heirs, 12% to siblings, and 15% to others. Pennsylvania taxes eight classes of income rather than starting from federal AGI.

The Canadian departure

Departure tax applies to non-registered investments, private company shares, crypto, and foreign property at fair market value on the day you leave. Canadian real estate, RRSPs, TFSAs, and pensions are excluded. Report on Form T1243, list holdings on Form T1161 if the total exceeds $25,000, and post security under Form T1244 to defer tax on illiquid assets. The rate is your province's: on a $300,000 unrealized gain, roughly $72,000 from Alberta and $80,000 from Ontario, Quebec, or BC. Provincial health coverage ends around your departure date; confirm the exact date with your plan and arrange US coverage to start the same month.

US federal side

Dual-status return in the arrival year, FBAR on Canadian accounts above $10,000 aggregate, Form 8938 above thresholds, and the RRSP treaty deferral federally. The TFSA loses its tax-free status the day you become a US person; close it before crossing. Equity compensation vesting after the move is split by working days between Canada and the US.

Pennsylvania's side

Flat 3.07% state income tax on eight classes of income; local earned income taxes in every municipality, 3.735% in Philadelphia, 3% in Pittsburgh, and 1% in most suburbs; 6% state sales tax plus 2% in Philadelphia and 1% in Allegheny County; property tax near 1.4% effective in Philadelphia and near 2% in Allegheny County; no estate tax, but an inheritance tax of 4.5% on transfers to children and other lineal heirs, 12% to siblings, and 15% to others, with a spousal exemption. Pennsylvania does not tax the undistributed earnings of retirement plans and exempts most retirement income received after retirement age.

The RRSP

Federally deferred under Article XVIII of the treaty. Pennsylvania taxes eight classes of income rather than starting from federal AGI, and it does not tax the undistributed earnings of retirement plans, which supports deferral. Pennsylvania also exempts most retirement income received after retirement age, which can cover RRIF withdrawals and Canadian pension income; document the position in the first-year file. Canadian withholding is 25% on lump sums, 15% on periodic RRIF payments within the treaty limit, with a US foreign tax credit federally.

Who makes this move

Canadian pharma and biotech professionals to the Philadelphia life sciences corridor, Canadian AI and robotics engineers to Pittsburgh's Carnegie Mellon orbit, Canadian finance staff to Vanguard and PNC, Canadian clinicians to Penn Medicine and UPMC, and Canadian retirees choosing Pennsylvania for its treatment of pension and RRIF income.

Worked example

An Ottawa retired couple moves to the Philadelphia suburbs on September 30 with a $45,000-a-year public service pension, $150,000 of unrealized gain in a non-registered account, $600,000 in RRSPs, and a Nepean home sold in the departure year.

• Departure tax. $150,000 gain, $75,000 taxable, at about 53.5%: roughly $40,000.
• Pension. NR301 filed; 15% Canadian withholding; taxed federally with a foreign tax credit; Pennsylvania exemption position documented.
• RRSP. Federally deferred; RRIF income later generally exempt in Pennsylvania after retirement age.
• Home. Sold as a resident under the principal residence exemption.
• Suburbs. State 3.07% plus 1% local on any earned income; pension and RRIF income generally exempt. HST 13% becomes sales tax 6%.

Official sources

"When you leave Canada, you are considered to have sold certain types of property (even if you have not sold them) at their fair market value (FMV) and to have immediately reacquired them for the same amount. This is called a deemed disposition and you may have to report a capital gain (also known as departure tax)." — Canada Revenue Agency, Leaving Canada (emigrants), https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html

"Pennsylvania personal income tax is levied at the rate of 3.07 percent against taxable income of resident and nonresident individuals, estates, trusts, partnerships, S corporations, business trusts and limited liability companies not federally taxed as corporations." — Pennsylvania Department of Revenue, Personal Income Tax, https://www.pa.gov/en/agencies/revenue/resources/tax-types-and-information/personal-income-tax.html

"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

Practitioner note

Pennsylvania is one of the better states for a Canadian retiree: pension and RRIF income are generally exempt from state tax after retirement age. The inheritance tax is the offsetting item, at 4.5% on transfers to children, and the Philadelphia wage tax is the item working movers decide with their address.

Corridor guides

• Calgary to Philadelphia: Energy, Pennsylvania's Flat 3.07%, and the City Wage Tax
• Montreal to Philadelphia: Pharma, Three Authorities, and the City Wage Tax
• Ottawa to Philadelphia: Defence, Pharma, and the City Wage Tax
• Toronto to Philadelphia: Pharma, Finance, and the City Wage Tax
• Vancouver to Philadelphia: Biotech, Pennsylvania's Flat 3.07%, and the City Wage Tax
• Calgary to Pittsburgh: Energy Engineering, Pennsylvania's Flat 3.07%, and Local Wage Tax
• Montreal to Pittsburgh: AI Jobs, Three Authorities, and Local Wage Tax
• Ottawa to Pittsburgh: Cybersecurity, Pennsylvania's Flat 3.07%, and Local Wage Tax
• Toronto to Pittsburgh: AI Jobs, Pennsylvania's Flat 3.07%, and Local Wage Tax
• Vancouver to Pittsburgh: Tech, Robotics, and the Property Tax Flip

See also: Weighing Florida instead? See the Canada-to-Florida guide. Browse every corridor by city, province, and state.

Next step

Fairlight prepares the Canadian departure return, the first-year federal and state returns, and ongoing cross-border filings. See cross-border pricing or book a call.