Do I still have to file a US tax return if I live in Canada?
Yes, for as long as you hold the citizenship. The US return is due on income above the filing threshold for your status, not on tax being payable, so a year that settles at nil is still a year that has to be filed — and the reliefs that get it to nil are claimed on the return, so an unfiled year claims nothing. The foreign-account and foreign-asset reports are separate duties again, and they are tested on what the accounts held rather than on what was owed. The full position is set out here.
Which return should be prepared first, the Canadian or the US one?
The Canadian one, in most years. The relief that stops you paying twice is a credit for Canadian tax against the US tax on the same income, so the US computation cannot be closed until the Canadian figures exist. Prepared the other way round, the credit rests on an estimate, and a later Canadian assessment can move it. Both returns are prepared as one engagement, at one fixed fee agreed in writing before either is started, and the document list is what we gather before the first one begins.
Will I actually owe the IRS anything after paying Canadian tax?
Usually little or nothing, though not automatically. Canadian rates on employment income are generally the higher of the two, so the credit for Canadian tax paid absorbs the US charge on the same income. What breaks the pattern is income Canada taxes lightly or not at all: where no Canadian tax was paid there is nothing for the credit to be a credit for. The earned-income exclusion runs alongside the credit rather than instead of it, capped at US$132,900 for the 2026 tax year for each person who qualifies on days or on residence, and the credit then works on what is left in the US base.
Do I have to report my Canadian bank accounts and my RRSP?
Yes, and to two different places — reporting is a separate question from tax. The FinCEN report is filed with FinCEN rather than attached to the return, and it turns on the aggregate high point of every foreign account during the calendar year: for the 2025 reporting year, above US$10,000 at any moment rather than at the year end. Form 8938 travels with the return on higher thresholds for a filer who meets the IRS test for living abroad — for 2025, more than US$200,000 at the year end or US$300,000 at any point during the year, if you are not filing a joint return. A registered retirement plan is still an account on those lists even where a treaty position shelters the growth inside it, so being sheltered is not the same as being unreportable.
Is a TFSA or a Canadian mutual fund a problem for a US citizen?
Both are, in different ways. An ordinary Canadian fund or ETF is generally a passive foreign investment company to the IRS, and the default treatment throws distributions and gains back across the holding period with an interest charge. Elections can replace that treatment, but they need a statement from the fund and many Canadian funds do not produce one. The tax-free savings and education plans are not recognised at all, so growth inside them is taxable to the US owner as it arises and the reporting can extend to trust returns — they are among the worst things a US citizen in Canada can own, which is a reason to look before the next contribution rather than after it. The comparison is here.
I have not filed US returns in years — what happens now?
Nothing gets filed first. The order is establishing which years are open, what the income and account positions were in each, and whether the failure was wilful — that last answer decides which route is available. Where it was not, the streamlined route for filers living outside the United States takes a limited number of back returns and account reports plus a signed certification, and it turns off the offshore penalties for those who qualify. It closes the moment the IRS makes contact first, which is why an ordinary late filing sent in ahead of the analysis can shut the route it was meant to open. How that route runs.
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.
Does the foreign earned income exclusion cover capital gains, dividends or a pension?
No. It covers earned income — pay for services performed abroad — and nothing else. Investment income, rental income, capital gains, pensions and social security all stay fully taxable, relieved if at all by the foreign tax credit or a treaty article. This is the single most common misreading of it: people exclude a salary, assume the rest followed, and discover the gap when the investment income is assessed. See exclusion against credit.
