Canada has a treaty and a totalization agreement — and a TFSA is not tax-free to the US.
There is a US–Canada income tax treaty and a totalization agreement, so double income tax is addressable, Canadian tax is creditable, and self-employment tax is relievable with a certificate of coverage. The expensive part is the accounts: an RRSP is protected by the treaty, a TFSA is not, and Canadian mutual funds and ETFs are PFICs.
Tax snapshot — Canada
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Sources: IRS Publication 54; IRS Publication 597; US–Canada income tax treaty (1980, as amended) Article XVIII(7); Rev. Proc. 2014-55; IRC §1291–1298 (PFIC); SSA totalization agreement list; Rev. Proc. 2025-32. Checked 1 September 2026. Provincial rates vary — the combined figure is stated as a range rather than a single number.
What that means on your return
An RRSP is the good news. Article XVIII(7) of the treaty defers the internal growth for US purposes, and since Rev. Proc. 2014-55 the election is automatic — Form 8891 is no longer filed. The account remains reportable on the FBAR and on Form 8938.
A TFSA is the bad news, and it is the single most common Canadian surprise. Nothing in the treaty makes it tax-free to the US, so the income inside it is currently taxable on your US return. Depending on how it is held it can also be treated as a foreign trust, raising Forms 3520 and 3520-A — a filing obligation with a penalty regime out of all proportion to the account size.
An RESP has the same problem as a TFSA and is often worse, because the government grant is taxable income to the US subscriber and the trust analysis is harder to avoid.
Canadian mutual funds and ETFs, including those held inside a non-registered account, are almost always PFICs. A Canadian-resident US citizen invested through ordinary Canadian retail funds is usually filing Form 8621.
Combined federal and provincial rates exceed 50% at the top in several provinces, so the foreign tax credit almost always beats the exclusion on employment income. Which province you live in changes the arithmetic, not just the total.
Canada charges a departure tax — a deemed disposition of most property — when you cease Canadian residence. It is a Canadian tax with US timing consequences, and the year you leave is the year to plan, not the year after.
Questions I get about Canada
Is my TFSA tax-free on my US return?
No. The treaty protects an RRSP; it says nothing that exempts a TFSA. Income earned inside a TFSA is currently taxable to the US, and depending on how the account is structured it can also be a foreign trust requiring Forms 3520 and 3520-A.
Do I have to file Form 8891 for my RRSP?
No. Rev. Proc. 2014-55 removed that requirement and made the treaty deferral automatic. The RRSP is still reported on the FBAR and, where the thresholds are met, on Form 8938.
Are Canadian mutual funds and ETFs a problem?
Usually yes. They are PFICs for US purposes, which means Form 8621 and an unfavourable default calculation. Holding US-domiciled funds instead avoids the issue, but the switch itself can be a taxable event — so it is a decision to take deliberately.
Do I pay US self-employment tax in Canada?
Not usually. There is a totalization agreement, so with a certificate of coverage self-employment income is subject to one country's system rather than both.
Should I claim the exclusion or the credit in Canada?
At combined rates above 50% the foreign tax credit is almost always better, and it leaves the exclusion unrevoked. But revoking the exclusion binds you for five years, so the comparison is run on your figures first.
When is my return due?
15 June, under the automatic extension for filers living abroad. Form 4868 moves it to 15 October, and I file the extension free.
Do I have to file an FBAR for my Canadian bank account?
If your foreign accounts together passed $10,000 at any point in the year, yes. You can file it free through FinCEN's own system. The non-willful penalty for not filing is $16,536.
I have not filed for several years. What now?
The Streamlined Foreign Offshore Procedures: three returns, six FBARs and Form 14653 certifying non-willfulness. Penalties are waived. Note that the IRS terminated the separate Delinquent FBAR Submission Procedures around 1 July 2026.
Filing from Canada this year?
Twenty minutes with the Enrolled Agent who will prepare and sign it. Complete return, $599.
An IRS Enrolled Agent working only on US tax for Americans living abroad. I prepare and sign every return myself — 17 years in practice, 12 of them as an Enrolled Agent.