How Canadian Retirement Plans are Taxed in the US

Are you an American citizen living in Canada? It’s never too early to plan for retirement. As a US expat, you’ll need to consider additional factors, like if your Canadian pension will be taxable in the US. Find out what you need to know now to plan for your financial future.

Are the Canadian Pensions Taxable in the US?

Before we get into how the US taxes Canadian pension benefits, let’s review two popular types of retirement accounts in Canada—Old Age Security Benefits and the Canadian Pension Plan—which are both part of the country’s public retirement program.

Canadian Old Age Security Benefits

The Old Age Security can be obtained if you meet the minimum requirements. It’s a modest monthly payment once you reach age 65. If you move out of Canada, you can still receive the old age security if you meet one of these requirements:

1. You resided in Canada for at least 20 years after turning 18, or
2. You lived in a country that has a social security agreement with Canada, and you meet the 20 year residency requirement

If you don’t meet either of these, you can receive pension payments for the month you left Canada and six years thereafter (for a total period of six years and one month).

Canadian Pension Plans

The Canadian Pension Plan provides you with a monthly retirement pension as early as age 60 if you’ve paid into it. The Canadian Pension Plan also offers disability insurance, as well as survivor and death benefits.

Canadian Pension Plans are not an automatic like Old Age Security. You will have to pay into this retirement plan to receive benefits from it.

How Does the US Tax These Canadian Pension Plans?

How the US taxes your Canadian pension benefits will depend on where you are a resident:

For US Residents

According to the IRS, special tax treatment applies to payments received from the Canadian pension, the Quebec pension plan, and the Old Age Security plan. If you are a resident of the United States, these retirement benefits are treated as US social security payments for tax purposes. The benefits are taxed only in the US—not Canada. Essentially, the IRS ignores the fact that these are Canadian retirement benefits and treats them like regular US social security benefits.

For Canadian Residents

If you are a US citizen or green card holder who is a resident in Canada, then the benefits are only taxable in Canada. No taxes will be due in the US. For low income pensioners who earn little or no other income, the Old Age Security is supplemented by a guaranteed income supplement, which is considered non-taxable income.

How to Report Canadian Pensions Plans on Your US Taxes

If you receive Canadian retirement or pension benefits while living in the US, you should report them on form 1040 or a 1040A (depending on which one you’re filing). Enter this income on the line where US social security benefits are reported.

Simplify Tax Planning for Your Retirement

Canadian expats have special considerations when it comes to retirement planning. From choosing the right type of account to planning for tax payments, making smart decisions now means you’ll get to enjoy the financial freedom you’ve dreamed about. Get a one-on-one tax consultation with one of our expert expat accountants today to start planning.