The 2025 US Tax Law for Canadians With US Income: What Changed for Withholding, Estate Exemptions, and Snowbird Returns

The 2025 legislation was long, and the parts that matter to a Canadian with US income, US property, or a US filing obligation are a short list — with one large item, several small ones, and one non-event that deserves its own paragraph. The large item: the estate and gift tax exemption. The unified credit's exemption amount, which had been scheduled to fall by roughly half at the end of 2025, was instead set at a new, higher, permanent level (US$15 million per individual from 2026, indexed) — and for the Canadian snowbird with a Florida condo, the pro-rated unified credit under the treaty's estate article (the Canadian resident's credit is the US exemption multiplied by the US-situs share of the worldwide estate — the 706-NA and estate-exposure guides) is computed on that larger figure, moving US estate tax exposure out of reach for nearly every Canadian estate with US property; the planning that the scheduled sunset had prompted (the estate-tax insurance, the holding structures, the nonrecourse-debt strategies) is re-run against the permanent number, and most of it stands down. The non-event: the proposed section 899 — a surtax on residents and companies of countries with taxes the US deemed discriminatory (Canada's digital services tax was the named trigger), which would have raised withholding and income tax rates on Canadian recipients of US income by escalating percentages — was in the House and early Senate versions and was removed from the enacted law after the relevant international negotiations; a Canadian who read the spring coverage and planned around a 5-to-20-point surtax on US dividends, interest, and rental income should know it was never enacted, and the treaty rates (15% on dividends, 0% on interest, the pension caps) apply unchanged. The individual provisions that touch Canadians filing US returns: the rate structure (the prior law's seven brackets and rates) made permanent rather than sunsetting — relevant to the Canadian filing a 1040-NR on US-source effectively connected income at graduated rates, and to the US citizen in Canada filing a 1040; the standard deduction's higher level made permanent and increased — relevant to US citizens abroad, not to nonresident aliens (who generally cannot claim it, treaty allowances aside); the state and local tax deduction cap raised (with a phase-down at higher incomes) — relevant to US residents in high-tax states, including Canadians who moved there; the child tax credit increased and indexed, with the Social Security number requirement for the claiming taxpayer as well as the child — relevant to American families in Canada (the child tax credit guide), and a constraint for mixed-status families where the claiming parent files with an ITIN; a new deduction for seniors (temporary, through 2028) and the temporary exclusions for tips and overtime (through 2028) — available to US citizens and residents with the relevant income, including the Canadian on a US work visa earning overtime, with the eligibility conditions verified; and the remittance transfer tax — a 1% excise on certain cash-funded outbound remittances (effective 2026), which does not apply to transfers funded from US bank accounts or by card and so does not touch the ordinary wire from a US account to Canada. The business and investment provisions: the tested-income regime's rename and revised percentages (the GILTI-rename guide — relevant to US citizens with Canadian corporations); the qualified small business stock exclusion expanded — relevant to Canadians founding US C corporations (the E-2 entity guide); the reporting thresholds restored (the Form 1099-K threshold returned to US$20,000 and 200 transactions; the 1099-NEC and 1099-MISC threshold raised to US$2,000 from 2026) — relevant to Canadian sellers on US platforms and Canadian contractors paid by US clients, who will receive fewer forms; bonus depreciation restored at 100% for property placed in service after the effective date — relevant to Canadian owners of US rental property under the net election and to cost-segregation planning (with the recapture consequences the FIRPTA-and-cost-seg guide covers); and the excess business loss and interest limitation provisions adjusted — relevant to Canadian-owned US businesses at scale. What did not change, for the record: the net investment income tax and its unindexed thresholds; the FBAR and Form 8938 regimes; FIRPTA; the foreign earned income exclusion's structure; the PFIC rules; the expatriation regime and its thresholds (indexed on their own schedule); the treaty and its rates; and the substantial presence test — the corridor's core machinery is untouched. What to verify before relying on any of it: the effective date of each provision (several are 2025, several 2026, the temporary ones through 2028); the exact exemption figure and its indexing; the SALT cap's phase-down thresholds; the child tax credit's amount and the SSN requirement's scope; the remittance tax's funding-source exceptions; and the reporting thresholds' effective years — the summary here is at the level of what changed, and the figures belong to the IRS's provision-by-provision page rather than to a blog post. The advisory posture: re-run every Canadian client's US estate exposure against the permanent exemption (most planning stands down); confirm no client is still planning around section 899; update the child tax credit computations for American families in Canada; note the 1099 threshold changes for Canadian platform sellers and contractors; and treat the temporary provisions (seniors, tips, overtime) as items to claim while they exist for the clients who qualify.

Key takeaways

• The estate exemption is the big one: a new permanent level (US$15 million from 2026, indexed) — the Canadian snowbird's pro-rated treaty credit is computed on it, and most US estate-tax planning for Canadian property stands down; re-run every exposure worksheet.
• Section 899 was not enacted: the proposed surtax on residents of countries with "discriminatory" taxes — Canada named — was dropped from the final law; treaty rates apply unchanged.
• Permanent rates and standard deduction; a higher SALT cap with a phase-down; an increased, indexed child tax credit with an SSN requirement for the claimant; temporary senior, tip, and overtime provisions through 2028; a 1% remittance tax on cash-funded transfers only (not bank wires).
• Business and investment: the tested-income regime renamed and re-percentaged; QSBS expanded; 100% bonus depreciation restored; 1099-K back to US$20,000/200 and 1099-NEC/MISC to US$2,000 (2026) — fewer forms for Canadian platform sellers and contractors.
• Unchanged: NIIT and its thresholds, FBAR/8938, FIRPTA, FEIE, PFIC, expatriation, the treaty, substantial presence — the core machinery.
• Verify the figures and dates: effective years vary (2025, 2026, through 2028); the exact numbers belong to the IRS's provision page, not to a summary.

The Canadian client's 2025-law review

Estate exposure worksheet re-run on the permanent exemption (most planning stands down). Section 899 confirmed not enacted (no surtax planning). Child tax credit computations updated for American families in Canada (amount, SSN requirement). 1099 threshold changes noted for platform sellers and contractors. Bonus depreciation and QSBS noted for US property owners and US-company founders. Temporary provisions flagged for qualifying clients. The tested-income rename applied to corporate owners (the separate guide). A one-page checklist, run once per client, with the IRS's provision page as the reference for every number.

Worked example

A Burlington couple with a US$1.1 million Naples condo, a US$400,000 US brokerage account, and a US$9 million worldwide estate had, in 2024, priced estate-tax insurance and a nonrecourse-mortgage strategy against the scheduled sunset of the exemption — their pro-rated treaty credit under the halved exemption would have left about US$150,000 of exposure. After the 2025 law: the pro-rated credit computed on the permanent US$15 million exemption (their US-situs share of about 17% times the exemption, against US estate tax on US$1.5 million of US-situs assets) covers the exposure entirely — the insurance is not bought, the mortgage strategy stands down, and the estate file records the re-run with the IRS's exemption figure and its indexing noted for the annual review. Their US brokerage account's dividends: the spring's section 899 coverage had them planning around a surtax that would have taken their withholding from 15% toward 20% or more — confirmed not enacted; the W-8BEN's treaty rate applies as before. Their daughter, a dual citizen in Toronto with two children: the child tax credit's increased amount and indexing raise her refundable credit under the credit method, and the SSN requirement for the claimant is met (she has one); her computation is updated. Their son-in-law, a Canadian selling on a US platform: the 1099-K threshold's restoration to US$20,000 and 200 transactions means the platform's forms stop arriving for his volume — his US filing analysis (no effectively connected income at his scale, the treaty's business-profits article) is unchanged, but the paperwork shrinks. One law, four family members, one large change and three small ones — and the non-event that had generated the most anxiety.

Official sources

The IRS summarizes the individual and business tax provisions enacted in the 2025 legislation, including the permanent extension of the individual rate structure and increased standard deduction, the increased estate and gift tax exemption, the modified state and local tax deduction limit, and the temporary deductions for tips, overtime, and seniors, with effective dates by provision. — Internal Revenue Service, One, Big, Beautiful Bill provisions, https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions

Article XXIX B of the Canada-United States Tax Convention provides relief from double taxation at death, including a pro-rated unified credit for the US estate tax of a Canadian-resident decedent based on the ratio of the US-situated estate to the worldwide estate, an additional marital credit for property passing to a surviving spouse, and foreign tax credit coordination between the US estate tax and Canadian income tax arising on death. — Canada-United States Tax Convention, Article XXIX B, 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 2025 law's Canadian-relevant list is short and dominated by one number — the permanent estate exemption — that retires most US estate-tax planning for Canadian property, plus one non-event that generated the most anxiety: the section 899 surtax that was never enacted. Our client review re-runs the estate worksheet on the permanent figure, confirms nobody is still planning around a surtax that doesn't exist, updates the child credit for American families, and notes the 1099 thresholds for platform sellers — with every figure sourced to the IRS's provision page, because a summary is not a citation.

See also: For why a written position review comes before any engagement, see why a written position review comes before any engagement; and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the 2025-law client review — the estate-exposure re-run on the permanent exemption, confirmation of the treaty rates' continuity, child tax credit and reporting-threshold updates, and the flagging of temporary and business provisions for clients who qualify. See cross-border pricing or book a call.