US Canada Totalization Agreement: Social Security, CPP and Certificates

The US Canada totalization agreement is a bilateral social security treaty that does two things. It stops a worker and employer from paying retirement contributions to both the U.S. Social Security system and the Canada Pension Plan on the same earnings, and it lets work credits from one country count toward benefits in the other. The agreement was signed in Ottawa on March 11, 1981 and entered into force on August 1, 1984. For Canada it covers Old Age Security and the Canada Pension Plan, and the United States has a separate understanding with Quebec for the Quebec Pension Plan. It matters to Canadians working in the United States, Americans working in Canada, and anyone who has worked in both countries and is approaching retirement.

How does the US Canada totalization agreement work?

Article V of the agreement sets the rule. An employee who works in the territory of one country is subject only to that country's social security law for that work. The exception is the detached worker: someone normally employed in one country and covered there, working for an employer with a place of business there, who is sent to the other country for the same employer for no more than 60 months. Affiliated companies count as one employer for this purpose. A person who is expected to work abroad longer than 60 months, or whose employer has no place of business at home, needs the prior consent of the two competent authorities. Short, intermittent trips are treated as separate periods.

The IRS notes that a worker who wants an exemption from U.S. Social Security and Medicare tax must secure a certificate of coverage from the home country's social security agency and present it to the U.S. employer.

Which system covers which worker?

For Quebec Pension Plan coverage, Retraite Québec issues its own form (QUE/USA 101). SSA tells U.S. employers to keep certificates in case of an IRS audit and not to send a copy to the IRS unless requested. Self-employed workers attach a copy to the U.S. return each year as proof of the exemption.

How do you get a certificate of coverage step by step?

1. Decide the type of assignment: local hire, posted worker or self-employed, and the expected length.
2. Pick the right agency. For CPP, request through the CRA's Form CPT56. For QPP, use Retraite Québec. For U.S. coverage, use SSA's Online Certificate of Coverage service.
3. Gather the facts: full name including maiden name, date and place of birth, citizenship, country of permanent residence, Social Security and Canadian SIN numbers, date of hire, nature of the work, employer names and addresses in both countries, and the transfer and expected return dates.
4. Submit before the work begins if possible.
5. Give the certificate to the paying employer and keep a copy with payroll records.
6. Renew or extend if the assignment length changes.

How do benefits combine?

For U.S. benefits, SSA's pamphlet says a person who lacks enough U.S. credits may qualify for a partial benefit counting Canadian CPP or QPP periods, but only if they have earned at least six U.S. work credits (about 1.5 years). Retirement benefits generally require between 1.5 and 10 years of credits depending on age, 10 years for anyone turning 62 in 1991 or later. For Canada, OAS needs 10 years of residence after age 18 (20 years to be paid outside Canada). Under the agreement Canada counts U.S. credits after age 18 toward that residence test if you lived in Canada at least a year. For CPP and QPP disability and survivor benefits, U.S. credits after 1965 may be counted if you have at least one year of CPP or QPP credit. CPP retirement needs only one contribution. Each country pays its own share and applies its own law.

What do you need to prepare for a benefit claim?

• Social Security number and Canadian SIN
• Proof of age for all claimants
• U.S. earnings for the last 24 months if requested
• Details of Canadian coverage
• Residence history in Canada after age 18

You can file with either country and ask it to treat the application as a claim in the other. SSA says U.S. residents apply for Canadian benefits at any Social Security office using Form CDN-USA 1.

How are the benefits taxed?

The treaty (Article XVIII, paragraph 5) says social security benefits are taxable only in the recipient's country of residence. A U.S. benefit paid to a Canadian resident is taxed in Canada as if it were a CPP benefit, with 15% of it exempt. A Canadian benefit paid to a U.S. resident is taxed in the U.S. like a Social Security benefit, except that types not taxed by Canada when paid to Canadian residents are exempt from U.S. tax. See the treaty guide and cross-border retirement planning.

Worked example

Susan, a U.S. citizen, worked 8 years in the United States (32 credits) and then 12 years in Canada before retiring in Calgary. She does not have the 40 credits typically required for a U.S. retirement benefit on her own, but because she has at least six U.S. credits, SSA may count her CPP-covered years to give a partial U.S. benefit. Canada pays her CPP based on her contributions and OAS based on her years of residence. Her U.S. benefit is taxed in Canada under the treaty with 15% exempt. These numbers are hypothetical; SSA and Service Canada calculate actual benefits.

Mistakes to avoid

• Paying both FICA and CPP because no certificate was requested.
• Assuming the agreement covers employment insurance or provincial programs; it covers pension programs.
• Forgetting to renew the certificate after a 60-month assignment.
• Not attaching the certificate to the U.S. return for self-employed workers.
• Assuming India has a similar U.S. agreement; the SSA list does not include India.

How we can help

We are a U.S. CPA firm in the Aurora, Illinois area. We advise U.S. employers and workers on payroll tax treatment, certificates of coverage, self-employment tax and the tax treatment of Canadian pensions on U.S. returns, and we coordinate with your Canadian CPA or payroll adviser for CPP filings. See payroll and employer compliance, cross-border tax services and the cross-border hub. Related guides: remote work between the U.S. and Canada and Canadians living in the U.S..

Frequently asked questions

General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.