US citizen in Canada, filing US taxes from abroad — what do I file?

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Answer

Canadian tax paid generally becomes a credit against the US tax on the same income, and because Canadian rates on employment income are usually the higher of the two, most long-term residents settle with the IRS at little or nothing. The filing set follows from the position, so the position is established first and the forms follow.

What actually has to be filed

Canadian tax paid generally becomes a credit against the US tax on the same income, and because Canadian rates on employment income are usually the higher of the two, most long-term residents settle with the IRS at little or nothing. The filing duty survives anyway, and it drags the foreign-account and foreign-asset reports along with it.

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The case that is treated differently

Canada taxes you because you live here; the United States taxes you because of the passport. Both returns are due every year, and the credit that stops you paying twice only works if the two are prepared in the right order.

US citizen in Canada, filing US taxes from abroad — what do I file?
ItemAmount
Foreign earned income (2025)US$186,000
Maximum exclusion, 2025 (verified, IRS)US$130,000
Amount excluded (lesser of the two)US$130,000
Earned income still in the US baseUS$56,000
Relief for the remainderForeign tax credit on the balance

The exclusion removes US$130,000 and leaves US$56,000 in the US base, which the foreign tax credit then works on. Running the exclusion and the credit together — rather than choosing one — is what gets that balance to nil in most years.

Treat these numbers as a worked example rather than advice — they exist to make the mechanics visible, and the rates and thresholds are assumed for the illustration. For a real filing, we verify each figure with the authority that publishes it, for your year.

Your next step

The full treatment — who it binds, the deadline, the penalty and the fixed fee — is on US citizen in Canada — filing US taxes from abroad. We would rather scope it properly than quote it quickly.

Reviewed for the 2025 and 2026 filing seasons by Udit Gupta, Cross-Border Tax Expert, Legal Quotient Consultants. Written as general guidance, not as a recommendation for your situation. Talk it through with us before acting on it.

US citizens living abroad and taxes — what this page covers

The search that brings most people to this page is US citizens living abroad and taxes. It is answered here for US citizen in Canada: what creates the obligation, which filings discharge it, and the fee agreed before the work starts.

People also search for: taxes for us citizens living abroad · taxes us citizen living abroad · filing taxes as a us citizen living abroad · filing us taxes from abroad · taxes for us citizen living abroad.

Cross-border situations we are engaged for

Case study 1

A First Canadian Year, With Two Returns to Sequence

A US citizen moved to Canada part-way through the year and arrived with both returns unstarted and no view on which one came first. The question was how the arrival date split the year and whether a part-year Canadian residency produced enough Canadian tax to carry the US liability. The engagement produced the arrival-year filing set on both sides, and the sequence the later years now follow.

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Case study 2

The Exclusion Claimed Out of Habit

Every prior US return had elected the earned income exclusion, while the Canadian tax on the same salary sat unused. The work was modelling the exclusion and the credit together across several years, rather than repeating an election because it was already there. It produced a written position on the election and an amended return for the year in which one category of income had gone uncredited.

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Case study 3

Returns Filed Every Year, Accounts Never Reported

The US returns had gone in on time for years, prepared by someone who never asked whether there were accounts outside the United States. The work was building the account and asset picture first — highest balances in each year, joint accounts, and one account the client only had signature authority over — and then choosing the route for the missing reports. It produced the outstanding reports filed and a reporting schedule kept with the file, so each year is now settled alongside the return.

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Case study 4

Retired in Canada, With Nothing to Exclude

A retired US citizen in Canada had dividends, interest and pension income and no wages at all, so the earned income exclusion reached none of it. The work was the credit computed category by category rather than as one total, together with the treaty position on the Canadian and US retirement plans. It produced a per-category credit schedule and the treaty disclosure the return had to carry.

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Case study 5

A US Employer Still Withholding After the Move

A US citizen kept their American employer after moving to Canada, and US tax carried on being withheld from every pay run for work performed in Canada. The technical question was which country had the first claim on that employment income; the practical one was that tax had been prepaid to the country whose claim comes second. It produced a Canadian return reporting the wages, a US return reconciling the withholding already taken, and the withholding arrangements put right before the next pay year.

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Case study 6

Consulting Work Moved Into a Canadian Company

A US citizen in Canada incorporated their consulting practice and expected the personal return to look much as it had before. Classification came first: whether the company is a corporation, a partnership or disregarded for US purposes decides which information return applies, and whether its profits are taxed before anything is distributed. The engagement produced the classification, the elections that had to be made on time, and the reporting package that now goes with the company each year.

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Case study 7

Two Passports, Two Returns, One Income

Dual citizenship does not let you choose which country taxes you. The work is establishing residence, applying the treaty article that governs each income type, and preparing both returns from one set of figures so they agree line for line.

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Case study 8

One Employee in a State Nobody Had Registered In

A single person working from home can create payroll registration, withholding and sometimes an income tax filing for the company in that state. The review measures activity against each state's own threshold.

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US citizen in Canada — filing US taxes from abroad — the questions that follow

Which return is prepared first, the Canadian one or the US one?

The Canadian one, for anyone whose income is earned in Canada. Canada taxes you as a resident, so it is the Canadian return that produces the figure of Canadian tax paid on which the US foreign tax credit is computed; build the US return first and the credit is claimed against a number nobody has worked out yet. US-source income runs the other way, because dividends, interest, rents and royalties from the United States are taxed at source there — so a filer with income on both sides has two computations that feed each other, and they are settled together rather than one after the other. That is why the two returns are worked on side by side instead of being sent to two preparers who never see each other's figures.

Which US forms does a US citizen in Canada file every year?

Form 1040, every year, because the obligation attaches to citizenship rather than to where you live. Around it sit Form 2555 for the foreign earned income exclusion or Form 1116 for the foreign tax credit, frequently both in the same return; Form 8938 with the return once your Canadian financial assets pass its threshold, which moves with filing status and with living abroad; and the FBAR, which goes to FinCEN instead of being attached to anything. Canadian pooled funds, a TFSA or an RESP, and a Canadian company each add a return of their own on top of that. The Canadian side has its own foreign-property statement, the T1135, measured on cost rather than market value — so each country ends up asking about the assets you hold in the other.

Do I have to report my Canadian bank accounts to the IRS?

Two reports reach across, and one of them does not go to the IRS at all: the FBAR is filed with FinCEN. Its test is the aggregate of every foreign account you hold or can sign on, at any point in the calendar year, so several small accounts that together cross the line are reportable — and signature authority over an employer's account or a parent's account counts even though none of the money is yours. Form 8938 is a separate obligation with a different agency, a different threshold and a different asset list, which is why satisfying one does nothing for the other. See filing both.

Should I claim the foreign earned income exclusion or the foreign tax credit?

Model both before electing either. The exclusion reaches earned income only — wages and self-employment profit — so it does nothing for someone living on dividends, a pension or rent, and the income it removes from the US base can no longer generate usable credit. Because Canadian rates on employment income are usually the higher of the two, the credit on its own often takes the US liability to nil, and credit you cannot use in the year carries rather than disappearing. The cap on the exclusion is indexed annually, on IRS figures: US$130,000 for the 2025 tax year and US$132,900 for 2026. See the foreign tax credit.

Do a TFSA, an RESP or Canadian mutual funds add to my US filing?

They are the usual reason the set grows. An RRSP has treaty relief that defers the growth inside it until it is drawn; a TFSA and an RESP have none, so income arising in them is taxable to you as it arises, and either can be reportable as a foreign trust as well. Ordinary Canadian mutual funds and index funds held outside a registered plan fall into the US passive foreign investment company regime, whose default treatment is built to be worse than the elections available — and an election has to be made in time to help, which makes it a decision about the holdings rather than about the return. See a TFSA or RESP held by a US person.

I have lived in Canada for years and never filed a US return — what do I file now?

Not simply this year's return, and not a quiet stack of late ones. Filing them in the ordinary way can close off relief a catch-up programme would otherwise have allowed, so the sequence is settled first: which years are genuinely open, whether the failure was non-willful, and which route the facts actually support. The back returns and the missing account reports then go in as one package, and the exclusions and credits that were never taken are taken on them — which is often why a completed catch-up ends with little or no US tax to pay. See the streamlined foreign offshore route.

How much foreign income is tax-free in the United States?

Nothing is exempt in the USA merely for arising abroad — a US person is taxed on worldwide income. What exists is an election: the foreign earned income exclusion removes foreign *earned* income up to an annual cap if you meet one of two qualifying tests, $132,900 for 2026 and $130,000 for 2025, with a separate housing amount alongside it. It does not touch investment income, pensions or gains, and it is claimed on a form rather than assumed. See the foreign earned income exclusion.

Do US citizens abroad have to report foreign bank accounts?

Yes, and under two separate regimes with different thresholds and different filing homes — one report to FinCEN covering foreign financial accounts, and one to the IRS with the return covering a broader class of foreign assets. Both are keyed to balances rather than income, so an account earning nothing can still require reporting, and each carries penalties of its own. See filing both.

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