How to Report US Employment Income on Your Canadian Tax Return

Tax filing for Canadians earning U.S. income

When a Canadian earns employment income in the United States, the U.S. employer is typically required to issue a Form W-2, Wage and Tax Statement, when gross pay exceeds the reporting threshold. The W-2 shows gross wages and amounts withheld for federal income tax, state income tax and, where applicable, Social Security and Medicare. A W-2 is analogous to the Canadian T4 Statement of Remuneration Paid.

If a Canadian student or intern works in the U.S. for the summer, withholding can apply at both the federal and state levels. In your son’s situation, it appears the employer withheld roughly 25% in combined federal and state taxes. He was instructed to file tax returns with the Internal Revenue Service (IRS) and the California Franchise Tax Board to reconcile actual tax liability and to claim any refund to which he was entitled.

What is an Individual Taxpayer Identification Number? When do you need it?

The U.S. equivalent of a Canadian Social Insurance Number (SIN) for tax reporting is the Social Security Number (SSN). SSNs are generally issued to U.S. citizens and certain non‑citizen residents. Nonresident aliens who must file a U.S. tax return but are not eligible for an SSN instead obtain an Individual Taxpayer Identification Number (ITIN).

An ITIN is a tax processing number issued by the IRS to people who need to file U.S. federal tax returns but lack an SSN. If your son was a nonresident alien for U.S. tax purposes when he worked in California, he would need an ITIN in order to file the federal return and to enable the IRS to match withholding reported by his employer to his tax return.

To request an ITIN, the taxpayer files Form W-7, Application for IRS Individual Taxpayer Identification Number, together with the federal tax return. Because the IRS initially could not match your son to the withheld taxes (no SSN/ITIN on the employer’s paperwork), the IRS may have been unable to process the return or issue the refund until an ITIN was applied for and assigned.

Given the complexity and potential delays, seek guidance from a U.S. tax professional who understands nonresident filing requirements and the ITIN application process.

How to report foreign income in Canada

Canada taxes its residents on worldwide income. If your son continued to be a Canadian resident for tax purposes while he worked in the U.S. for the summer, he must report the U.S. employment income on his Canadian return and convert the amounts into Canadian dollars using an appropriate exchange rate for the period.

To prevent double taxation, the Canada Revenue Agency (CRA) generally allows a foreign tax credit for income tax paid to another country. Important: the credit should reflect the net U.S. tax actually paid after filing U.S. federal and state returns — not simply the gross amounts withheld that appear on the W-2. For example, if your son later received a California state refund, the refunded amount reduces the state tax considered paid for Canadian foreign tax credit purposes.

In practice, the CRA often requests official documentation of foreign tax paid. A copy of the U.S. or state tax return alone may be insufficient; the CRA typically prefers evidence such as an IRS notice of assessment or state tax agency statement showing the final balance owing or refund. Maintain all W-2s, federal and state tax returns, ITIN correspondence and assessment notices to support any foreign tax credit claim.

When do Canadians have to file a U.S. tax return?

Canadians generally must file U.S. federal and state tax returns if they earn U.S.-source income and have a filing requirement under U.S. rules. Common examples include wages paid for services performed in the U.S., rental income from U.S. property and capital gains from U.S. real estate. Filing rules vary by type of income and residency status, so each situation should be reviewed individually.

Processing times for nonresident filings and ITIN applications can be lengthy, so delays are common. Because the CRA may require proof of foreign tax paid before granting a foreign tax credit, it can be helpful to obtain IRS and state assessment documents showing the final calculated tax and any refund or balance due.

In short: your son likely needed to file a U.S. federal return and a California state return to reconcile withholding and claim any refund. He likely also had to apply for an ITIN if he did not have an SSN. For his Canadian return, he should report the U.S. income in Canadian dollars and claim a foreign tax credit for the net U.S. taxes actually paid, after taking into account any state refund. Given the cross-border complexity and potential documentation requirements from the CRA, consulting a tax professional experienced in U.S.-Canada matters is advisable.

Read more from Jason Heath:

• Tax planning for Canadians who invest in the U.S.
• Where do we pay income tax if we retire abroad?
• Do non-residents pay tax on CPP? What if you live in the U.S.?

• What to know about withholding tax in retirement