Canada vs. US Taxes: Complete 2026 Comparison
Canada vs. U.S. Taxes: At a Glance
Canada generally has a higher overall tax burden than the United States. Canadians pay more in sales and provincial income taxes, while Americans often face lower income taxes but higher out-of-pocket costs for services such as healthcare.
A key structural difference is how each country taxes individuals:
- Canada uses residency-based taxation
- The United States uses citizenship-based taxation, meaning U.S. citizens must file tax returns even if they live abroad
Because of this difference, taxes affect Americans living in Canada very differently from how they affect Canadians living in Canada.
Differences in Taxation
| Feature | Canada | United States |
|---|---|---|
| Tax Basis | Residency-based | Citizenship-based |
| Top Federal Income Tax Rate | 33% | 37% |
| Provincial / State Income Tax | All provinces levy income tax | Some states have no income tax |
| Sales Tax | 5–15% (GST/HST/PST) | 0–11%+ (state/local) |
| Healthcare | Publicly funded through taxes | Primarily private, with out-of-pocket costs |
| Corporate Tax Rate | ~15% federal (+ provincial) | 21% federal |
| Estate Tax | None | Applies to large estates |
Ditch the Double-Taxation Stress.
Key Nuances for 2026
- Sales Tax Variation: In Canada, Nova Scotia recently lowered its HST portion, moving its total rate from 15% down to 14% as of April 2025. In the US, while some base state rates are low, local “business district” taxes can push total sales tax in specific cities (like Chicago or parts of California) to nearly 11%.
- US Estate Tax Exemption: In 2026, the US federal estate tax exemption remains high (roughly $15 million per person) due to recent legislation that prevented the “sunset” of previous tax cuts. This means only extremely wealthy individuals are affected.
- Canadian Deemed Disposition: While the table says “None” for Canada’s estate tax, it is important to remember that Canada treats death as a “sale” of all assets. Your estate must pay capital gains tax on the increase in value of your property (except for your primary home) upon your death.
Do Canadians Actually Pay Higher Taxes Than Americans?
Yes, in most cases, Canadians pay higher total taxes than Americans.
Canada’s top federal income tax rate is 33%, compared to 37% in the U.S. However, when provincial taxes are added, Canada’s combined top marginal rates can exceed 50% in some provinces. In the U.S., combined federal and state rates typically range from 37–50%, depending on where you live.
The trade-off is that Canadian taxes fund universal healthcare, paid parental leave, and other social services that Americans often pay for privately.
The 2026 Tax Landscape: Two Years at Once
When discussing taxes in early 2026, it is easy to get confused. As a taxpayer, you are currently looking in two directions:
- Looking Backward (Filing): You are preparing to file your 2025 tax return this spring.
- Looking Forward (Earning): You are currently earning income that will be taxed under the 2026 rules.
The “Big 2026 Change” in Canada
For the first time in years, Canada has adjusted its actual tax rates, not just the income brackets. The lowest federal rate has dropped from 15% to 14%. Because this was phased in during 2025, you’ll see an “effective” rate of 14.5% on your upcoming 2025 tax return, but a clean 14% on the income you earn throughout 2026.
The Inflation Shift in the US
While US tax percentages (10% to 37%) remain steady, the brackets have shifted upward by roughly 2% for 2026. This is designed to prevent “bracket creep,” where a small inflation-based raise at work accidentally pushes you into a higher tax tier.
Don’t Leave Your Tax Savings at the Border.
Side-by-Side: Federal Tax Brackets (2026 Tax Year)
The rates below apply to income earned from Jan 1 – Dec 31, 2026.
| Canada (Federal) | Rate | United States (Single Filers) | Rate |
| First $58,523 | 14% | First $12,400 | 10% |
| $58,524 – $117,045 | 20.5% | $12,401 – $50,400 | 12% |
| $117,046 – $181,440 | 26% | $50,401 – $105,700 | 22% |
| $181,441 – $258,482 | 29% | $105,701 – $201,775 | 24% |
| Over $258,482 | 33% | $201,776 – $256,225 | 32% |
| — | — | $256,226 – $640,600 | 35% |
| — | — | Over $640,600 | 37% |
Despite higher rates, you’ll likely owe $0 in US taxes thanks to expat protections designed specifically for this situation.
How Much Tax on a $100,000 Salary?
To see the difference in “take-home pay,” let’s look at a single filer earning a $100,000 salary (in their respective local currency).
Canada (C$100,000 income in Ontario)
For the 2026 tax year, a person in Ontario faces a total tax bill of approximately C$23,240.
- Take-Home Pay: C$76,760 (Before CPP/EI payroll deductions)
- Federal Tax: ~$16,420 (Benefiting from the new 14% bottom bracket)
- Ontario Provincial Tax: ~$6,820
- Effective Rate: ~23.2%
United States (US$100,000 income)
In the U.S., the bill depends heavily on where you live.
- Federal Tax: ~$14,260
- State Tax (e.g., Florida/Texas): $0
- State Tax (e.g., California): ~$5,300
- Total Tax: $14,260 – $19,560
- Effective Rate: ~14.3% – 19.6%
- Take-Home Pay: $80,440 – $85,740 (Before FICA payroll deductions)
The Verdict: On paper, an Ontarian pays about $4,500 more in income tax than the average American. However, this is only half the story for two reasons:
- Healthcare: That “extra” tax covers the Canadian’s healthcare. An American often pays $5,000–$15,000 in annual premiums and deductibles, which can quickly make the U.S. more expensive.
- Double Taxation Protection: For Americans in Canada, this higher bill is actually a “shield” that protects them from the IRS.
The “Double Taxation” Shield
U.S. citizens are taxed on their worldwide income, but the U.S.–Canada Tax Treaty prevents you from paying twice. You generally use one of two methods to zero out your U.S. bill:
1. Foreign Earned Income Exclusion (FEIE)
For 2026, you can simply exclude up to $132,900 USD of your Canadian earnings. Since $100k is under that limit, the IRS treats your taxable income as $0.
2. Foreign Tax Credit (FTC)
You get a dollar-for-dollar credit for taxes paid to Canada. Since your Ontario bill ($23,240) is higher than your U.S. bill would have been ($18,760), you tell the IRS: “I already paid more than you’re asking for.” Your U.S. tax bill drops to $0.
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.
Sales Tax and Property Tax Differences
While income tax is protected, other “daily” taxes differ significantly in 2026:
- Sales Tax: Canada’s 5%–15% (HST/GST) is higher than the U.S. average of 0%–11%. However, Canada typically doesn’t tax “essentials” like groceries or prescriptions, which many U.S. states do tax.
- Property Tax: U.S. rates are often higher (0.3%–3.0%) than Canada’s (0.5%–2.5%).
- The 2026 Advantage: In 2026, U.S. homeowners get a massive break. The SALT deduction cap (State and Local Tax) has been raised from $10,000 to $40,400. This means Americans can now deduct nearly all of their property and state taxes from their federal bill—a luxury Canadians don’t have.
Which Expat Tax Strategy Should I Use?
Most Americans in Canada use one of two strategies, and the “best” one usually depends on your income level and your long-term goals.
Choose the Foreign Tax Credit if you:
- Live in a high-tax province: If you live in Ontario, Quebec, or BC, the FTC is almost always better because your Canadian tax “credits” will easily wipe out your U.S. bill.
- Earn over $132,900: The FTC has no upper limit, making it the better choice for high earners.
- Have children: The FTC allows you to claim the U.S. Child Tax Credit (which can result in a refund check from the IRS), while the FEIE often disqualifies you from it.
Choose the FEIE if you:
- Earn under $132,900: It’s a simpler “all-or-nothing” exclusion for your salary.
- Live in a lower-tax province/territory: If your Canadian tax bill is unusually low, the exclusion might save you more than the credit.
- Are moving mid-year: The FEIE can be easier to calculate if you only spent part of 2025 or 2026 in Canada.
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.
Common Mistakes to Avoid in 2026
- Thinking “No Tax Owed” means “No Filing Required”: Even if your U.S. tax bill is $0, you must file a 1040 every year. The IRS doesn’t know you owe $0 until you tell them.
- Missing the FBAR Deadline: If the combined total of all your Canadian accounts (bank, RRSP, TFSA) exceeded $10,000 USD at any point in 2025, you must file an FBAR by April 15, 2026.
- TFSAs and the IRS: Be careful, the IRS does not recognize the “Tax-Free” status of a Canadian TFSA. You may still owe U.S. tax on the gains inside that account.
- The “Year of Move” Mess: Your first year as an expat is the most complicated. Failing to file as a “Dual-Status” alien in the year you move can lead to accidental double taxation.
Related Article: TFSA for US Citizens in Canada: What You Need To Know About the Tax Trap
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
Related Reading: How to Move to Canada in 2026
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.
One Move, Two Tax Returns, Zero Headaches
Frequently Asked Questions: Canada vs. U.S. Taxes
In general, taxes are higher in Canada than in the United States. Canada relies more heavily on income and sales taxes, and combined federal and provincial tax rates can exceed 50% for high earners. The U.S. often has lower income taxes, especially in states with no state income tax, but Americans typically pay more out of pocket for services like healthcare.
On an income of approximately C$70,000, most Canadians can expect an effective tax rate of roughly 20–25%, depending on their province. This includes federal and provincial income taxes, as well as payroll contributions. Exact amounts vary by location, deductions, and credits.
It depends on your priorities. The U.S. generally offers lower taxes, particularly for higher earners and residents of low-tax states. Canada has higher taxes, but those taxes fund services like universal healthcare, paid parental leave, and social programs that Americans often pay for privately. The better option depends on income level, location, healthcare needs, and lifestyle preferences.
Canada is considered a higher-tax country compared to the United States, but it is in line with other developed nations. While Canadians pay more in income and sales taxes, those taxes support public healthcare and social services, reducing many out-of-pocket costs that are common in the U.S.
Americans living in Canada must file U.S. tax returns, but they usually do not pay taxes to both countries on the same income. U.S. tax rules allow Americans abroad to use the Foreign Tax Credit or the Foreign Earned Income Exclusion, which typically eliminates U.S. tax liability when Canadian taxes are higher.
Healthcare is a major difference. Canada funds healthcare through taxes, while the U.S. relies more on private insurance and out-of-pocket costs. Although Canadian taxes are higher, many Canadians save thousands of dollars annually by not paying insurance premiums, deductibles, or co-pays.
Yes. The United States taxes based on citizenship rather than residency, which means U.S. citizens must file annual tax returns even if they live and work in Canada. Filing does not necessarily mean owing tax, but it is still required.
Yes. Because Canadian tax rates are generally higher, many U.S. citizens in Canada owe $0 in U.S. income tax after applying the Foreign Tax Credit or the Foreign Earned Income Exclusion. Filing correctly is key to ensuring these benefits are applied.
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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.
