If you’re a U.S. citizen living in Canada, you’re stuck juggling two tax systems, two sets of retirement rules, and one big fear: getting taxed twice. You have to report worldwide income to the IRS, Canada wants its share too, and then there’s the question of what to do with your RRSP vs. your 401(k). To avoid painful surprises and wasted tax credits, you’ll need to understand how the treaty and key forms actually work…
Who This U.S.–Canada Tax Guide Is Really For
Whether you’re already in Canada or just thinking about crossing the border, this guide is for people whose financial lives now span both the U.S. and Canada.
You might be a U.S. citizen who’s moved north, a Canadian working for a U.S. employer, or a dual citizen juggling RRSP savings alongside a 401(k)/IRA.
You’ll see how the treaty, the foreign tax credit, and Form 1116 work together so the same income isn’t taxed twice.
If you’re worried about double taxation on salary, investments, or retirement withdrawals, this guide’s written for you.
It’s also meant for you if you know enough to realize you don’t know enough-and want a framework before talking to a cross‑border tax professional.
Core Rules for U.S. Citizens Filing in Canada
Once you recognize this guide really is about your situation, the next step is understanding the basic ground rules you’re playing under. As a U.S. citizen in Canada, you must report worldwide income to the IRS, even when you’re also a Canadian tax resident. Canada also taxes you on global income, so you’ll often rely on the foreign tax credit, usually via Form 1116, to offset U.S. tax with Canadian tax paid.
RRSP taxation is another core rule: Canada defers tax on RRSP growth, and the U.S. generally waits to tax it until withdrawal, but you may have to report withdrawals as pension income. If both countries claim you as a resident, the treaty’s residency tie-breaker determines which system governs.
How the U.S.–Canada Tax Treaty Prevents Double Taxation
So how does the U.S.–Canada tax treaty actually keep you from being taxed twice on the same income?
It starts by deciding which country gets first shot at taxing you. If both treat you as a resident, the treaty’s residency tie-breaker tests (home, vital interests, habitual abode, nationality) determine your primary tax home.
Next, the U.S.–Canada tax treaty limits each country’s taxing rights on specific income. It cuts withholding tax on cross‑border dividends, interest, and pensions, so less is taken at the source.
Finally, it coordinates use of the foreign tax credit. When Canada taxes your income first, you generally claim a U.S. foreign tax credit for those Canadian taxes, so your combined bill approximates the higher of the two countries’ rates, not both added together.
Foreign Tax Credits vs. FEIE: Which Should You Use?
How do you actually choose between the Foreign Tax Credit (FTC) and the Foreign Earned Income Exclusion (FEIE) when you’re in Canada and filing in both countries?
You start by asking where your income is taxed more heavily. If Canada’s tax is higher, the Foreign Tax Credit often works better: you claim Canadian tax on Form 1116 to offset your U.S. bill and minimize double taxation.
If your Canadian salary is modest and fully covered by FEIE, excluding it may simplify your U.S. return but can limit future FTC use, especially since most non‑business credits can’t be carried forward.
RRSP treaty considerations also matter: RRSP growth is already tax‑deferred for U.S. purposes, so you focus your FTC vs. FEIE decision on non‑RRSP income.
RRSPs for U.S. Citizens Living in Canada
After you’ve weighed Foreign Tax Credits against the FEIE, the next big question is what to do with your Canadian retirement savings-especially RRSPs-as a U.S. citizen in Canada.
Your RRSP grows tax-deferred in Canada, and thanks to the US-Canada treaty, that deferral is generally respected on your U.S. return, even though contributions usually aren’t deductible in the U.S.
You’ll typically report RRSP withdrawals as ordinary income in the U.S., but you can often use the foreign tax credit to offset Canadian tax and reduce double taxation on this cross-border retirement income.
Since 2014, treaty benefits can apply automatically, often eliminating Form 3520-A, though FBAR and FATCA Form 8938 may still apply.
Keeping your RRSP can preserve valuable U.S. tax deferral.
Your 401(k) After You Move to Canada
Once you’ve wrapped your head around RRSPs, the next big piece is what happens to your U.S. 401(k) when you move to Canada.
In most cases, you don’t want to liquidate the 401(k); keeping it preserves U.S. tax deferral and gives you more flexibility for cross-border taxation planning.
If you do consider moving money, limited transfers to an RRSP may be possible under ITA 60(j), but only when strict conditions are met and usually after a taxable U.S. distribution.
Withdrawals after you’ve relocated are still U.S.‑taxable as ordinary income, with possible 10% early withdrawal penalties before age 59½.
To minimize double taxation, you’ll likely rely on the treaty and Foreign Tax Credit (Form 1116), plus Canadian reporting of the account and income.
RRSP vs. 401(k) for Americans in Canada: What to Prioritize
Ever wonder whether you should prioritize building your RRSP in Canada or keep focusing on your U.S. 401(k) after you’ve moved north?
In Canada, RRSP contributions are deductible and growth is tax-deferred, but you don’t get a U.S. deduction, so you’re trading current U.S. tax for Canadian benefits and future treaty-based deferral on growth.
Your existing 401(k) generally keeps its U.S. tax deferral when you become a Canadian resident.
Canada taxes 401(k) withdrawals as ordinary income, and you’ll usually use the Foreign Tax Credit to reduce U.S. tax and limit double taxation.
In practice, you often prioritize RRSP contributions when your Canadian marginal rate is higher, and keep your 401(k) for growth rather than new contributions.
Foreign Tax Credits and Form 1116: Step-by-Step
Wondering how to actually turn the Canadian tax you’ve paid into a dollar-for-dollar reduction of your U.S. tax bill? You’ll use the Foreign Tax Credit and Form 1116 to do it.
First, confirm the Canadian income was taxed in Canada and is also taxable in the U.S.-salary, investments, and some RRSP withdrawals often qualify under the US-Canada tax treaty.
Next, gather your T1, Notice of Assessment, and proof of tax paid.
On Form 1116, categorize the income, enter gross Canadian income, the foreign taxes paid, and compute the FTC limitation.
Your credit is the lesser of U.S. tax on that income or Canadian tax paid.
Unused credits may be carried back or forward, supporting long-term double taxation avoidance.
Common U.S.–Canada Tax Mistakes to Avoid
How can you stay compliant in both countries without tripping over the most common cross‑border tax traps?
First, don’t ignore FBAR rules: if your non‑U.S. accounts ever exceed $10,000 in aggregate, you must file, including accounts holding RRSPs and TFSAs.
Be careful combining FEIE and the Foreign Tax Credit; the wrong mix can waste Canadian taxes you’ve paid and undermine your RRSP strategy.
Remember that many RRSPs qualify for Form 3520‑A relief under Revenue Procedure 2014‑55, but TFSAs usually don’t, often triggering Form 3520/3520‑A or other trust filings.
Finally, don’t mistime RRSP withdrawals or misread treaty withholding. Treaty protection doesn’t erase U.S. reporting-Form 8938 and treaty‑based return positions may still be required.
Action Plan: Find a U.S.–Canada Tax Advisor and Catch Up on Filings
Avoiding mistakes is only half the battle-you also need a clear plan to get fully compliant and keep your cross‑border taxes under control going forward. Start by finding a dedicated cross-border-tax specialist who understands FEIE FTC choices, treaty positions, and RRSP vs 401(k) strategy. Your tax advisor plan should begin with data gathering: Canadian T1s, Notices of Assessment, proof of tax paid, U.S. returns, and any prior Form 1116, 8833, FBAR, and FATCA filings.
Next, map a catch‑up timeline: file missing Form 1116 for Foreign Tax Credits, late FBAR/FinCEN 114, and correct RRSP/TFSA disclosures. With your advisor, compare FEIE vs FTC under your residency status and decide whether RRSP, 401(k), or IRA contributions deliver the best long‑term result.
