Non-resident of the US: are you subject to US tax?

Although as a non-resident of the United States you do not have to file a US income tax return (with some exceptions), your US-source income may be subject to tax through a 30% withholding tax, in accordance with the Internal Revenue Code (IRC), US tax law.

Decrease withholding

Depending on who is earning the income (individual or corporation), the withholding may be reduced in whole or in part by completing Form W-8BEN or W-8BEN-E. These forms are used to confirm to the payer that you are a non-resident of the United States and that you are entitled to the benefits of the tax treaty between Canada (or any other qualifying country) and the United States.

Thus, by completing one of these forms, the withholding to be made will rather be dictated by the tax treaty and will generally vary between 0 and 15%. The income covered by these forms includes dividends, interest, copyright, etc.

In some cases, avoid withholding

Withholding could be avoided altogether if you complete Form W-8ECI. This can be prepared in cases where your income is closely related to doing business in the United States. This form could therefore be relevant if you are renting your rental property located in the United States.

However, by completing this form, you agree to file a US income tax return and report your income there annually. If your income actually connected to a business in the United States is from independent services, you will instead need to complete Form 8233 and demonstrate that your activity is not carried on through a permanent establishment in the United States.

Foreign tax credit

As a resident of Canada, you will need to add this income to your Canadian tax return. If you owe tax in the United States, you may be able to claim a foreign tax credit in Canada.

Also, if the US withholding has not been properly applied, a US tax return could be prepared to recover the overpayment. If necessary, we have the expertise to go and recover these sums.

To find out more, do not hesitate to make an appointment with our tax experts specializing in US tax. We can assist you in the preparation of US income tax forms and returns, and validate the applicable withholding rate by type of income.

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About the author

Olivier Custeau, tax expert, B.A.A., M. Fisc., EA

Holder of a bachelor's degree in business administration (B.B.A) from Université Laval and a master's degree in taxation (M. Fisc.) from the Université de Sherbrooke, Olivier has developed expertise in American and international taxation by working in a renowned firm. Over the years, he has developed a keen interest in US taxation. In fact, he was awarded Enrolled Agent status in 2019, the highest level a professional can attain to represent clients to the Internal Revenue Service (IRS). Recognized for his rigorous, dynamic and human approach, Olivier is an asset to the team.