Double Withholding on RSUs After Moving to Canada
Why a restricted stock unit vest after a move can be withheld on by two payrolls at once, how the treaty sources the income, and how to get the excess back.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
When restricted stock units vest after a move from the United States to Canada, U.S. payroll may withhold income tax and Social Security while Canadian payroll withholds at full Canadian rates — far more than the final tax. The income is sourced by where you worked between grant and vest, and each country refunds its excess on that country's return.
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Why does it happen?
| Payroll | What it does | Why |
|---|---|---|
| U.S. payroll | Withholds supplemental wage tax (22 percent, 37 percent above $1 million) plus Social Security and Medicare on the full vest | Treats the award as granted while a U.S. employee |
| Canadian payroll | Withholds at the employee's marginal rate — up to about 55 percent in the highest-rate province (2026) — on the full vest | Treats the vest as Canadian employment income |
| Combined | Can exceed 70 percent of the value | Neither payroll applies the treaty sourcing |
Employers with cross-border payroll systems can apportion the withholding; many do not.
How is the income actually taxed?
Under Article XV of the Canada–U.S. treaty, employment income may be taxed where the work was performed, as well as in the country of residence. For an award that vests over time, both countries generally source the vest by workdays: the portion of the grant-to-vest period spent working in the United States is U.S.-source, the rest Canadian-source.
- Canada taxes a resident on the whole vest as employment income (restricted stock units do not qualify for the stock option deduction) and gives a foreign tax credit for U.S. tax on the U.S.-source portion.
- The United States taxes a non-resident alien only on the U.S.-source portion; a U.S. citizen or green card holder reports the whole vest and credits Canadian tax on the Canadian-source portion.
- Social Security generally applies only to the U.S.-source wages, and the totalization agreement prevents contributions to both systems on the same work.
How do you recover the excess?
- U.S. return. File Form 1040-NR (or Form 1040 for a U.S. citizen) reporting the sourced amount with the withholding shown on the W-2; the difference is refunded.
- Canadian return. Report the full vest, claim the foreign tax credit for the final U.S. tax (not the withholding), and recover the over-withheld Canadian amount as a refund.
- Going forward. Ask the employer to apportion withholding by workdays, and file Form T1213 with the Canada Revenue Agency to reduce Canadian source deductions where the U.S. tax on the U.S.-source portion is known.
Keep a workday calendar from the grant date; it is the evidence for both returns.
What goes wrong?
Claiming a Canadian foreign tax credit for the U.S. withholding rather than the U.S. tax on the sourced income; failing to file the U.S. return and leaving the refund unclaimed; and selling the shares on vest without tracking the cost base, which for Canadian purposes is the vest-date value already taxed as employment income.
Frequently asked questions
Does the same problem affect stock options?
Yes, with the added wrinkle that Canada may allow the 50 percent stock option deduction while the United States taxes the spread at exercise; sourcing still follows workdays.
What if I was never a U.S. citizen or green card holder?
You file Form 1040-NR for the U.S.-source portion only; the Canadian-source portion is outside U.S. tax entirely.
Can I ask the employer to stop U.S. withholding?
For a non-resident alien, pay for work performed outside the United States is not wages subject to U.S. withholding, so the employer can limit withholding to the U.S.-workday portion if its payroll supports it. Form 8233 (not Form W-8BEN) is the form for claiming a treaty exemption on U.S.-source pay, which rarely applies to work done while a U.S. resident.
Which year's rate applies in Canada?
The vest year; Canada does not tax the award at grant.
Official sources
The Canada Revenue Agency explains: “The taxable benefit is the difference between the fair market value (FMV) of the shares or units when the employee acquired them and the amount paid, or to be paid, for them, including any amount paid for the rights to acquire the shares or units.” — Canada Revenue Agency, Employers' Guide – Taxable Benefits and Allowances (T4130): Security options, https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4130/employers-guide-taxable-benefits-allowances.html
The treaty provides: “salaries, wages and other similar 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. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.” — Department of Finance Canada, Convention Between Canada and the United States of America, Article XV (Dependent Personal Services), https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. and Canadian Tax Desks source each vest by workdays and file both returns to recover the excess. See pricing or book a free fit call.
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