Canada vs. US Taxes: Complete 2025 Comparison
For tax year 2025, the IRS has increased the Foreign Earned Income Exclusion to $130,000, up from $126,500 in 2024. This means most American expats in Canada will owe $0 in US taxes, even though Canadian tax rates are generally higher than American rates.
Here’s what you need to know: Canada’s top federal rate is 33% while the US federal rate reaches 37%, but when you add provincial taxes, Canadians typically pay 40-53% combined rates versus 37-50% in the US. The key difference? As an American expat in Canada, those higher Canadian taxes you pay typically eliminate your entire US tax bill through the Foreign Tax Credit or Foreign Earned Income Exclusion.
Will I Actually Pay Higher Taxes in Canada?
Yes, Canadians generally pay higher total taxes than Americans, but the trade-off includes universal healthcare, generous parental leave, and comprehensive social services that can save you thousands annually.
2025 Federal Tax Rates Comparison:
Canada Federal Brackets:
- 14.5% (effective rate for 2025) on income up to C$57,375
- 20.5% on income from C$57,375 to C$114,750
- 26% on income from C$114,750 to C$177,882
- 29% on income from C$177,883 to C$253,414
- 33% on income over C$253,414
US Federal Brackets:
- 10% on income up to $11,925 (single filers)
- 12% on income from $11,926 to $48,550
- 22% on income from $48,551 to $103,350
- 24% on income from $103,351 to $197,300
- 32% on income from $197,301 to $250,525
- 35% on income from $250,526 to $626,350
- 37% on income over $626,350
When you add provincial taxes (5-16% depending on province), Canadian total rates often exceed US combined federal and state rates by 5-15 percentage points.
Despite higher rates, you’ll likely owe $0 in US taxes thanks to expat protections designed specifically for this situation.
How Much Will I Actually Pay on $100,000 in Canada?
Let’s look at real numbers for someone earning C$100,000 in Ontario (roughly US$73,000):
Canadian Taxes on C$100,000:
- Federal tax: C$17,057
- Ontario provincial tax: C$7,041
- Total: C$24,098 (24.1% effective rate)
US Taxes on Equivalent US$73,000:
- Federal tax: $10,967
- State tax (varies): $0-$6,000
- Total: $10,967-$16,967 (15.0-23.2% effective rate)
The Expat Advantage: As an American in Canada, you’d pay the C$24,098 to Canada but likely $0 to the US because the higher Canadian taxes eliminate your US liability through the Foreign Tax Credit.
Plus, that Canadian tax includes universal healthcare that could easily cost a US family $15,000+ annually in premiums, deductibles, and co-pays.
Do I Need to Worry About Double Taxation?
No. The US tax system includes two powerful protections that typically eliminate double taxation for American expats:
Foreign Earned Income Exclusion (FEIE)
The FEIE allows you to exclude up to $130,000 of Canadian employment income from US taxation for 2025. To qualify, you must meet either:
- Physical Presence Test: Spend at least 330 days outside the US in any 12-month period
- Bona Fide Residence Test: Establish genuine residence in Canada for a full tax year
Example: Sarah earns C$95,000 (US$70,000) working in Toronto. Using the FEIE, she excludes her entire salary from US taxation and owes the IRS $0.
Foreign Tax Credit (FTC)
The Foreign Tax Credit gives you a dollar-for-dollar credit for Canadian taxes paid against your US tax bill.
Example: Mark earns C$150,000 (US$110,000) in Vancouver and pays C$45,000 in Canadian taxes. His US tax on $110,000 would be about $19,000, but the Foreign Tax Credit of $19,000+ eliminates his entire US tax bill.
Most expats in high-tax countries like Canada benefit more from the Foreign Tax Credit than the FEIE because it often provides complete tax elimination plus carryforward benefits.
Stop guessing. Download the expert guide now.
What About Sales Tax and Property Tax Differences?
Sales Taxes:
- Canada: 5% federal GST plus 0-10% provincial sales tax (5-15% total)
- US: 0% federal; state sales taxes range from 0-10.75%
Canadian sales taxes are higher, but essentials like groceries and prescription drugs are often exempt.
Property Taxes:
Property tax rates vary significantly within both countries:
- Canada: Generally 0.5-2.5% of assessed value
- US: Typically 0.3-3.0% of assessed value
Key Difference: US property taxes are deductible against federal income tax (up to $10,000), while Canadian property taxes aren’t income-deductible, but municipal rates are often lower.
Which Expat Tax Strategy Should I Use?
The choice between FEIE and Foreign Tax Credit depends on your specific situation:
Choose the Foreign Tax Credit if:
- You live in a high-tax province like Ontario or Quebec
- You earn over $130,000 annually
- You want to preserve eligibility for US retirement account contributions
- You have investment income alongside employment income
Choose the FEIE if:
- You live in a lower-tax province like Alberta
- You earn under $130,000
- You frequently travel and might not maintain continuous Canadian residence
Many expats use both strategically: FEIE for earned income up to $130,000 and Foreign Tax Credit for amounts above that threshold or for investment income.
Who doesn’t love a tax break? Download our easy-to-use excel calculator to get an estimate of how the foreign earned income exclusion can save you money.
What Mistakes Should I Avoid?
Filing Mistakes:
- Not filing a US return because you owe $0 (you must file annually to claim expat benefits)
- Missing the automatic June 15 filing extension for expats
- Failing to report worldwide income before applying exclusions
Strategy Mistakes:
- Using FEIE when the Foreign Tax Credit would be better (or vice versa)
- Not optimizing between different expat tax benefits
- Ignoring FBAR requirements for Canadian bank accounts over $10,000
Timing Mistakes:
- Not planning for the year you move to Canada (pro-rating benefits)
- Revoking FEIE without understanding the 5-year waiting period to reclaim it
What Are My Next Steps?
For Americans Already in Canada:
- Gather your Canadian tax documents and employment records
- Determine which expat tax strategy works best for your income level
- File your US return by June 15 (automatic extension for expats) or October 15 with Form 4868
- File FBAR by April 15 if your Canadian accounts exceed $10,000
For Americans Planning to Move to Canada:
- Consider timing your move for tax optimization
- Understand how moving mid-year affects your exclusions
- Plan for establishing bona fide residence or meeting physical presence requirements
- Research provincial tax differences to optimize your Canadian location
Remember: Even though you’ll likely pay higher total taxes in Canada, you typically won’t pay double taxation. The higher Canadian taxes usually eliminate your US tax liability entirely.
Get Expert Help for Peace of Mind
Canadian tax rates are higher than US rates, but the US expat tax system prevents you from paying taxes to both countries on the same income. Most American expats in Canada owe $0 in US taxes when they file correctly.
No matter how complex your Canada-US tax situation may be, we can help. If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.
This article provides general tax information for educational purposes. Tax laws are complex and change frequently. Always consult with a qualified tax professional for advice specific to your situation.
