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Taxes and deductions when contracting for a US company

  • Last Updated:
  • Apr 17th, 2019 5:56 pm
[OP]
Newbie
Dec 9, 2018
5 posts
1 upvote

Taxes and deductions when contracting for a US company

My spouse has been offered an IT job for a US company. They require that he get a business number and work as an independent contractor. I do the taxes and accounting in our family so I want to make sure that I have a clear understanding of how to go about this. So far my understanding is that to do this properly he will need to register as a sole proprietorship. At the end of the year he will receive a W2 and be required to pay income tax based on this. During the year we should be putting aside the projected income tax amount and twice the normal CPP deduction because my understanding is that he will have to pay as both an employee and an employer. EI doesn’t seem worth paying into since it will only cover parental leave and illness and we are not planing on more children / have other arrangements if sick leave is required.
Am I missing anything here or is there a way that I can streamline this?
He will be getting payed in US funds so do I have to calculate conversion rates each time he is paid or only at the end of the year?
Can both income tax and CPP be paid when doing income taxes or should I set this up to be done on an ongoing or quarterly basis?
Any tips and tricks would be much appreciated.
4 replies
Deal Addict
Jul 4, 2004
4707 posts
828 upvotes
Ottawa
You need to get more information. Do they want him to have a Canadian Business Number or a US Business Number. If it's Canadian number, that's much easier although you should probably consult an accountant. If it's a US Business Number, that's probably not trivial and you'll be creating a US Tax Entity and will be responsible for filing US returns. If it's a US Number they want, he's probably better finding someone in the US with an existing US company and working through them (either someone you know or if you don't know anyone, simply ask the US company if they have other contractors working for them and work through that person's company offering them a slight portion of your pay in exchange for working through them (you invoice them, they invoice the US employer).

He should not be receiving a W-2 ("corp-to-employee"), he should be getting a 1099 which is simply a "corp-to-corp" payment. If he's getting a W-2, he will need a US Social Security number (not hard to get) but will also have to fill US tax returns. If he's just receiving a 1099 and has no physical presence in the US then he does not need to file US tax returns. (Technically, he could actually work in the US for his Canadian Corporation and he may not have to file US tax returns as long as everything is done properly).

Hope this helps

P.s. I am not a tax expert and I would strongly recommend that you get professional tax advise.
Deal Guru
User avatar
Feb 10, 2007
10922 posts
1852 upvotes
I think you are over complicating, if your spouse is contracting then you would just have your registered business and send the US company an invoice. They would just pay the invoice and that's your income. You based your tax on that.

The conversion depending on if you are doing monthly or annually tax. If you are doing annually, your just use the conversion rate for the year BOC provides. https://www.bankofcanada.ca/rates/excha ... nge-rates/. Vice versa for the monthly.
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