TN Visa Taxes: The Complete Guide for Canadians Working in the U.S.

Short answer

Your TN visa does not decide how you're taxed. The IRS uses the Substantial Presence Test — a day-count formula — to decide whether you're a resident or nonresident alien for tax purposes. Most Canadians working a full year in the U.S. on TN end up as resident aliens: taxed on worldwide income, filing Form 1040, paying Social Security and Medicare from day one. Your first year is the complicated one. Your TFSA is very likely a tax problem. Your RRSP is fine if you handle it right.

1. Your visa status doesn't decide your taxes

This is the single most misunderstood point. Immigration status (TN) and tax status (resident vs. nonresident alien) are two separate systems. The IRS says it plainly: an alien is a resident for tax purposes if they meet the green card test or the Substantial Presence Test — visa type doesn't enter into it.

• Source: IRS, "Determining Alien Tax Status" — irs.gov

What this means in practice: two Canadians on identical TN visas can file completely different U.S. tax returns, depending on how many days each spent in the country.

2. The Substantial Presence Test, step by step

You meet the test if both of these are true:

1. You were physically present in the U.S. for at least 31 days in the current year, and
2. Your weighted day count is 183 or more, where the count = all days in the current year + 1/3 of days in the prior year + 1/6 of days in the year before that.

Worked example. You moved to Texas on TN in 2025 and spent 200 days in the U.S. that year, 60 in 2024, 0 in 2023:

200 + (60 ÷ 3) + (0 ÷ 6) = 200 + 20 + 0 = 220 → you meet the test for 2025.

A full first year in the U.S. almost always clears 183. A partial first year (arriving in, say, October) usually doesn't — which is where the first-year complications below come in.

• Source: IRS Publication 519, U.S. Tax Guide for Aliens — irs.gov

3. The Closer Connection Exception (Form 8840)

Even if you meet the day count, you can still be treated as a nonresident alien if you:

• were present in the U.S. for fewer than 183 days in the current year,
• maintained a tax home in Canada, and
• had a closer connection to Canada than to the U.S. (permanent home, family, bank accounts, memberships, where your belongings are).

You claim it by filing Form 8840 (Closer Connection Exception Statement) with the IRS. This is the provision that covers the classic first-year TN scenario: you arrived mid-year, you still have a home and family in Canada, and you're under 183 U.S. days.

• Source: IRS Publication 519 — irs.gov

4. Resident vs. nonresident: what actually changes

The practical bite: as a resident alien, your Canadian-source income (rental income, investment gains, that freelance invoice from Toronto) goes on your U.S. return too. The U.S.–Canada treaty and the foreign tax credit exist to prevent the same dollar being taxed twice — but you have to claim them; nothing is automatic. (Your immigration paperwork is a separate job: see the TN visa support letter guide and how TNPath compares with other options.)

One more wrinkle people miss: filing the wrong form is one of the most common first-year errors. A resident alien who files 1040-NR (or vice versa) usually ends up with an IRS notice and an amended return.

5. First-year moves: dual-status and the first-year choice

If you arrived mid-year and don't meet the Substantial Presence Test for your arrival year, you're generally a dual-status alien: nonresident for the part of the year before you met the test, resident after. Dual-status returns have their own restrictions (no joint filing in most cases, no standard deduction).

There is also a first-year choice election that can let you be treated as a resident for part of your arrival year even before you meet the day count — it has strict conditions (including meeting the test in the following year). The details are in IRS Publication 519, and this is exactly the kind of election a cross-border CPA should run for you in year one rather than something to DIY from a guide.

• Source: IRS Publication 519 — irs.gov

6. FICA: Social Security and Medicare start on day one

Unlike income tax, FICA doesn't wait for the Substantial Presence Test. The IRS rule for TN holders is explicit: professionals in TN status are fully liable for U.S. Social Security and Medicare taxes from the very first day of U.S. employment, whether they are resident or nonresident aliens. TN has no student-style FICA exemption.

• Source: IRS, "Alien Liability for Social Security and Medicare Taxes of Foreign Teachers, Researchers, and Other Foreign Professionals" — irs.gov

The rates: 6.2% Social Security on wages up to an annual cap set each year ($184,500 for 2026; $176,100 for 2025, per the Social Security Administration), plus 1.45% Medicare on all wages. Your employer withholds both.

The one exception: the U.S.–Canada Totalization Agreement. If you're sent to the U.S. temporarily by a Canadian employer (generally under 5 years) and stay covered under CPP, you can be exempt from U.S. Social Security tax — you need a certificate of coverage from the Canada Revenue Agency / Service Canada to give your U.S. employer. If a U.S. employer hired you directly, you pay FICA like everyone else.

• Source: Social Security Administration, U.S.–Canada totalization agreement — ssa.gov

7. State taxes: it depends where you work

States have their own income tax rules, and a few don't follow the federal playbook exactly. Texas, Florida, and a handful of others have no state income tax at all. If you work in California, New York, or another taxing state, budget for a state return on top of the federal one — and know that some states don't fully honor treaty positions the way the IRS does. Check the state, not just the country.

8. When both countries claim you: the treaty tie-breaker

It's possible to be a tax resident of both the U.S. (via the Substantial Presence Test) and Canada (via residential ties) in the same year. The U.S.–Canada tax treaty settles it with a tie-breaker (Article IV) applied in order:

1. Where is your permanent home?
2. Where is your center of vital interests (closer personal and economic ties)?
3. Where is your habitual abode?
4. What is your citizenship?

You work down the list until one country wins. The loser generally gives up its claim, and the foreign tax credit cleans up what's left. This is genuinely complex territory — it's the core of what cross-border accountants do.

• Source: U.S.–Canada Income Tax Treaty, Article IV — irs.gov

9. Leaving Canada: the departure tax

Canada doesn't let you leave for free. When you cease to be a Canadian tax resident, the Income Tax Act treats most of your property as if you sold it at fair market value on your departure date — the "departure tax" (deemed disposition). Capital property, investments, and similar assets are caught; registered accounts like RRSPs are generally excluded from the deemed sale.

Your departure date is the day you sever your residential ties (home, spouse, dependents in Canada — the CRA looks at the whole picture). You can file Form NR73 to ask the CRA for a determination of your residency status, and you report the departure on your final Canadian return.

Two practical notes: your departure date affects your final Canadian return, so it's worth discussing with a cross-border tax professional before you set it. And "I'll just keep my Canadian address" can backfire: keeping strong ties can keep you a Canadian tax resident on top of becoming a U.S. one.

• Source: CRA, "Leaving Canada (emigrants)" — canada.ca

10. RRSPs: the treaty protects them — if you handle the paperwork

Your RRSP gets special treatment under the treaty. Article XVIII(7) lets a U.S. taxpayer defer U.S. tax on RRSP/RRIF earnings until withdrawal — the growth isn't taxed annually the way a normal taxable account would be.

What changed: the IRS eliminated Form 8891 (Revenue Procedure 2014-55) — you no longer file that form at all, for any year. Under Revenue Procedure 2014-55, eligible individuals get the deferral automatically, without making an election. What didn't change: you still report the RRSP on the FBAR (FinCEN Form 114) and on Form 8938 (FATCA) when thresholds are met. And RRSP contributions are generally not deductible on your U.S. return the way they are in Canada.

• Sources: IRS, "IRS Simplifies Procedures for Favorable Tax Treatment on Canadian Retirement Plans" — irs.gov · Revenue Procedure 2014-55 — irs.gov

11. TFSAs: the trap almost everyone falls into

A TFSA is tax-free in Canada and fully taxable in the United States. The treaty doesn't cover it — the TFSA didn't exist when the treaty was last amended, so there's no relieving provision. Every dollar of interest, dividends, and capital gains inside your TFSA goes on your U.S. return as current-year income.

It gets worse. Most U.S. tax professionals treat a TFSA as a foreign grantor trust, which means Form 3520 (Annual Return to Report Transactions with Foreign Trusts) and Form 3520-A — with penalties starting at $10,000 for non-filing. And Canadian mutual funds or ETFs inside the TFSA are generally PFICs (Passive Foreign Investment Companies), each requiring Form 8621 — punitive taxation if mishandled. Note the honest caveat: the IRS has never issued definitive guidance classifying the TFSA, so practitioners differ on the trust question — but the conservative, common professional position is to file.

The practical takeaway: many TN holders stop contributing to their TFSA once they become U.S. taxpayers, and get professional advice on what to do with the existing balance before it compounds into a reporting mess.

• Sources: IRS Publication 54 (Tax Guide for U.S. Citizens and Resident Aliens Abroad) — irs.gov · IRS Form 3520 instructions — irs.gov

12. FBAR and FATCA: the reporting nobody warns you about

Separate from income tax, the U.S. wants to know about your foreign accounts:

• FBAR (FinCEN Form 114): required if your foreign financial accounts totaled more than $10,000 at any point in the year. Filed electronically with FinCEN, not the IRS. Due April 15, automatically extended to October 15.
• Form 8938 (FATCA): filed with your tax return. Thresholds are higher — for a single filer living in the U.S., more than $50,000 on the last day of the year or $75,000 at any point during it.

Your Canadian bank accounts, RRSP, and TFSA all count toward these thresholds. Penalties for not filing can be $10,000 or more per form. This is the single most common "I had no idea" compliance gap for new TN holders.

• Sources: FinCEN, FBAR filing requirements — fincen.gov · IRS, Form 8938 — irs.gov

13. The 7 costliest TN tax mistakes

1. Assuming the visa decides the taxes. Run the Substantial Presence Test every year — it can flip.
2. Filing the wrong form. Resident = 1040, nonresident = 1040-NR. Filing the wrong one earns you an IRS notice.
3. Keeping the TFSA on autopilot. Taxable in the U.S., trust reporting, PFIC exposure. Get professional advice on it in year one.
4. Forgetting the RRSP still needs FBAR/8938. The treaty defers the tax, not the reporting.
5. Ignoring the departure tax. Canada deems most property sold when you leave. Plan the date; file the final return properly.
6. Missing the FBAR entirely. $10,000 aggregate threshold catches almost everyone with Canadian accounts.
7. DIY-ing the first year. Arrival-year elections (dual-status, first-year choice, treaty tie-breaker) are the highest-stakes, lowest-forgiveness filings you'll do. That's the year to pay a cross-border CPA.

FAQ: TN visa taxes