US citizens living in Canada owe two annual tax returns: a Canadian return as a Canadian resident, and a U.S. return because the United States taxes its citizens on worldwide income wherever they live. The two systems overlap, so most of the work is making sure each dollar of income is taxed once, that foreign credits are claimed correctly, and that every Canadian account, fund and registered plan is reported. This guide walks through the sequence we use for Americans in Toronto, Calgary, Vancouver and other Canadian cities, with the 2025 returns filed in 2026 in mind.
What must US citizens living in Canada file each year?
Work through this list for every year you are a citizen or green card holder, even with no U.S. income:
- Form 1040 with Schedule B, the foreign tax credit (Form 1116) or the earned income exclusion (Form 2555), and any treaty position disclosed on Form 8833.
- FinCEN Form 114 (FBAR) if the combined foreign accounts exceeded $10,000 at any time in the year. See the FBAR guide.
- Form 8938 with the return if foreign assets pass the threshold for people living abroad: more than $200,000 on the last day of the year or $300,000 at any time for a single filer, and $400,000 and $600,000 for a joint return. See Form 8938 step by step.
- Form 8621 for each Canadian fund that is a PFIC, covered in Canadian mutual funds, ETFs and PFIC.
- Form 5471 if you are an officer, director or shareholder of certain foreign corporations, which includes many owner-managed Canadian companies.
- Forms 3520 and 3520-A for certain foreign trusts and large foreign gifts. RRSPs and RRIFs are excluded under Revenue Procedure 2014-55, and other registered plans may be excluded under later guidance; see the RRSP, RRIF, TFSA and RESP guide.
How do you file both returns step by step?
- Collect the Canadian slips and statements: T4, T4A, T5, T3, RRSP and TFSA statements, and the Notice of Assessment.
- Prepare the Canadian T1 first. Canadian tax paid becomes the foreign tax credit on the U.S. side. The T1 step-by-step guide covers the Canadian mechanics, and your Canadian CPA prepares it.
- Convert amounts to U.S. dollars using a consistent, documented rate for each item.
- Choose credit or exclusion. The exclusion applies to foreign earned income up to $130,000 for 2025 and does not reduce self-employment tax. Many Canada-resident citizens use credits instead; we model both.
- Apply the treaty. Article XXIV(4) to (6) gives a special mechanism for a citizen resident in Canada: Canada credits U.S. tax only up to what a non-citizen would owe, and the U.S. credits the Canadian tax with certain income treated as Canadian source. See the treaty guide.
- File the information returns (FBAR, Form 8938, Form 8621 and others).
- Mail or e-file Form 1040 and pay any balance. Returns from abroad go to the IRS address for foreign filers.
Documents and information you need
- Passport details, U.S. Social Security number and, for a spouse without one, an ITIN (see SSN and ITIN)
- Canadian T1 return, slips and Notice of Assessment
- Year-end and high-balance statements for every Canadian account
- Fund and ETF statements showing purchase dates and cost
- Corporation records if you own shares of a Canadian company
- Prior U.S. returns and proof of any earlier foreign tax credit carryover
Deadlines and penalties
For 2025, the U.S. return was due April 15, 2026. People living outside the United States with their main place of business outside it get an automatic two-month extension, to June 15, 2026, and Form 4868 can add four more months, to October 15, 2026. The extension does not extend payment, and interest runs from April 15. The FBAR was due April 15, 2026 with an automatic extension to October 15, 2026. Form 8938 follows the return's due date including extensions. Form 8938 failures carry a $10,000 penalty with additional amounts after IRS notice, up to a stated maximum of $60,000, and FBAR civil penalties are adjusted annually. Canada's T1 for 2025 was due April 30, 2026 (June 15 for self-employed filers), and Canadian residents with specified foreign property costing more than C$100,000 file Form T1135 on the same date; see T1135.
How the same item is treated in each country
| Item | United States | Canada |
|---|---|---|
| Worldwide income | Taxed because you are a citizen | Taxed because you are resident |
| RRSP growth | Deferred if the treaty election applies (Rev. Proc. 2014-55) | Deferred until withdrawal |
| TFSA growth | Generally taxed currently; reporting relief depends on size and plan type | Tax-free |
| Canadian mutual funds | PFIC rules, Form 8621 | Ordinary investment |
| Home sale | Exclusion capped by dollar amount | Principal residence exemption, no dollar cap; see capital gains and principal residence |
| Foreign accounts | FBAR and Form 8938 | T1135 for specified foreign property over C$100,000 |
Worked example
Maya is a US citizen living in Mississauga. In 2025 she earns the equivalent of $85,000, pays about $20,000 of combined Canadian federal and Ontario tax, and the U.S. tax on the same income before credits is about $9,000. She holds Canadian chequing and savings accounts of $40,000, an RRSP of $150,000 and a TFSA of $30,000. The foreign tax credit on Form 1116 eliminates the U.S. tax, so she owes no U.S. tax, but she still files Form 1040. Her accounts together exceed $10,000, so she files an FBAR listing each account, and her total of $220,000 on December 31 passes the $200,000 abroad threshold for Form 8938. She does not file Form 8891 for the RRSP. The figures are hypothetical.
Mistakes to avoid
- Assuming no U.S. tax means no U.S. return.
- Using the exclusion without checking its effect on credits and future planning.
- Leaving the TFSA off the FBAR and Form 8938.
- Holding Canadian mutual funds for years without Form 8621.
- Converting every figure at a different exchange rate with no documentation.
- Waiting for an IRS letter. Proactive catch-up is cheaper than being found.
What if you missed returns or FBARs?
The Streamlined Foreign Offshore Procedures allow eligible people who live abroad to file the most recent three years of returns and six years of FBARs, certify on Form 14653 that the failures were non-willful, and pay the tax and interest due. The IRS page says taxpayers under examination are not eligible and that the procedure does not apply to willful conduct. Choose it only after we review the facts, and see the IRS foreign reporting penalties guide.
How we can help
We are a U.S. CPA firm in the Aurora, Illinois area. We prepare the U.S. side for Americans living in Canada, including credits, FBAR, Form 8938 and PFIC reporting, and we coordinate with your Canadian CPA so the T1 and the Form 1040 agree. See individual returns for newcomers and NRIs, foreign account and asset reporting and cross-border tax services. The cross-border hub lists related guides.
Frequently asked questions
Do I owe U.S. tax if I already paid Canadian tax?
Often not, because the foreign tax credit can offset it, but that depends on the type of income and the credit limits. You still file the return.
Does my RRSP need Form 8891?
No. Form 8891 became obsolete as of December 31, 2014. Eligible people are treated as having made the treaty election, but the RRSP still counts for FBAR and Form 8938.
Are Canadian mutual funds a problem?
Frequently, yes. They are usually PFICs, which carry special tax and Form 8621 reporting. See the dedicated guide.
Can I stop being a U.S. taxpayer?
Giving up citizenship or a green card has its own tax rules and Form 8854. Get advice before any step.
Which return do I prepare first?
The Canadian T1, because the Canadian tax paid feeds the U.S. credit calculation.
Official sources
- IRS: US citizens and resident aliens abroad, filing requirements
- IRS: US citizens and resident aliens abroad, where and when to file and pay
- IRS: Comparison of Form 8938 and FBAR requirements
- IRS: Streamlined foreign offshore procedures
- IRS: Foreign earned income exclusion
- IRS: Revenue Procedure 2014-55 (Canadian retirement plans)
This page summarizes public guidance in plain language. If anything here differs from the official source, the official source controls.
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.