Can My Canadian Employer Keep Me on Payroll After I Move to the US?

If you are moving to the US and your Canadian employer wants to keep you, the simplest approach from your employer’s perspective is to keep you on Canadian payroll as if nothing changed. This works administratively in the short term, but it creates tax and legal problems for both you and your employer that compound over time.

The core issue is that you are performing work in the US. That work creates US-source income (for you), potential permanent establishment (for your employer), US payroll tax obligations (for your employer), and state-level nexus (for your employer). Your Canadian employer was not set up for any of this.

Problem 1: your income is US-source

Income from services is sourced where the services are performed (IRC 861(a)(3), IRC 862(a)(3)). If you work from your home in Texas, your income is US-source, regardless of whether your employer is in Canada. You owe US federal income tax on the income, and you owe state income tax if your state imposes one.

If you remain on Canadian payroll, you also receive Canadian T4 income, which Canada may continue to tax through source deductions (CPP, EI, income tax withholding). You can claim a treaty-based exemption from Canadian tax on the income if you are a US resident performing services in the US (Article XV generally gives the US exclusive taxing rights on employment income earned in the US by a US resident). The broader departure checklist covers the rest of what to settle before the move. But the administrative burden of stopping Canadian withholding, filing an NR301 or letter with your employer, and reconciling the Canadian and US tax treatment is significant.

The result: you must file a US return reporting the employment income. If your employer is still withholding Canadian tax, you either claim an FTC on the US return for the Canadian tax or seek a refund from CRA. The FTC usually works (Canadian withholding offsets US tax on the same income), but the compliance is double: two countries, two returns, two sets of withholding to reconcile.

Problem 2: permanent establishment for your employer

Under Article V of the Canada-US tax treaty, a Canadian corporation has a “permanent establishment” (PE) in the US if it has a fixed place of business in the US through which it carries on business. An employee working from a home office in the US can constitute a PE if the employee has authority to conclude contracts on behalf of the employer, or if the home office is a fixed place of business that the employer uses regularly.

If a PE exists, the Canadian employer’s profits attributable to the PE are subject to US corporate income tax. The employer must file a US corporate tax return (Form 1120-F), allocate profits to the PE, and pay US tax on those profits.

Most Canadian employers do not want this. A single employee in the US may create a PE, especially if the employee has a management role, signs contracts, or performs core business functions from the US location. The PE risk is lower for employees who perform purely support or administrative functions, but the line is not bright.

Problem 3: US payroll obligations

An employer with a US employee owes US employment taxes:

• Social Security (employer share, 6.2%) on wages up to $176,100 (2026)
• Medicare (employer share, 1.45%) on all wages, plus 0.9% Additional Medicare Tax on wages above $200,000
• FUTA (Federal Unemployment Tax Act) at 6.0% on the first $7,000 of wages (effective rate 0.6% with state credit)
• State unemployment insurance (varies by state)
• State withholding (if the state has income tax)
• Workers’ compensation insurance (required in most states)

The employer must register with the IRS (obtain a US EIN), register with the state employment agency, file quarterly payroll returns (Form 941), and comply with state payroll requirements. A Canadian employer that has never operated in the US has none of this infrastructure.

The totalization agreement may affect CPP vs Social Security: under the Canada-US Social Security Totalization Agreement, an employee sent from Canada to the US for a temporary assignment (up to 5 years) can remain on CPP and be exempt from Social Security. But this applies to temporary assignments, not permanent moves. If you have permanently moved to the US, the totalization exemption does not apply, and Social Security and Medicare are owed.

Problem 4: state nexus

Your presence in a US state as an employee of a Canadian corporation can create “nexus” for the employer in that state. Nexus triggers state-level obligations:

• State corporate income tax: the state may tax the portion of the employer’s income attributable to the state
• Sales tax: if the employer sells products or services, the employee’s presence may create sales tax collection obligations in the state
• Franchise tax: some states (Texas, Delaware) have franchise or margin taxes

The nexus analysis varies by state. Some states have economic nexus thresholds that the employer might trigger independently. But a physical employee in the state is a clear nexus trigger in virtually every state.

The cleaner alternatives

Option 1: US subsidiary or branch

The Canadian employer forms a US entity (typically a US LLC or US corporation). You become an employee of the US entity. The US entity handles US payroll, US employment taxes, and US compliance. The Canadian parent pays the US entity through an intercompany arrangement (management fee, service agreement, or cost-plus arrangement with transfer pricing documentation).

This is the most robust solution for long-term arrangements. It adds cost (entity formation, US tax filings, transfer pricing compliance), but it cleanly separates the US employment from the Canadian employer.

Option 2: independent contractor

You terminate your employment and become an independent contractor providing services to your former Canadian employer. You register as a US sole proprietor (or form a US LLC). You invoice the Canadian employer for your services. You handle your own US taxes, including self-employment tax (15.3% on net self-employment income, covering both employer and employee shares of Social Security and Medicare).

The risk: if the arrangement looks like employment (the employer controls your hours, tools, and work process), the IRS and state agencies may reclassify the contractor arrangement as employment, triggering back employment taxes and penalties. The arrangement must reflect genuine independent contractor status, not just a label change.

The Canadian employer provides you with a W-8BEN (if you are Canadian) or you provide the employer with a W-8BEN or W-9 (depending on your status). If you are a US person, the employer does not withhold US tax (you handle it yourself). If you are still a Canadian citizen working in the US, the arrangement depends on your specific immigration and tax status.

Option 3: employer of record (EOR)

An EOR service (Deel, Remote, Papaya Global, etc.) becomes your legal employer in the US. The EOR handles US payroll, employment taxes, benefits, and compliance. Your Canadian company pays the EOR, and the EOR pays you as a US employee. You have a proper US employment relationship without your Canadian employer needing to set up a US entity.

EOR services charge $400 to $700+/month per employee. For a single employee, this is simpler and cheaper than forming a US entity, especially if the arrangement may not be permanent.

What should I do next?

Talk to your employer before the move, not after. The options (US entity, contractor, EOR) take time to set up. If you are already in the US and still on Canadian payroll, the compliance issues are accumulating and should be resolved. Start with: does your employer want to continue the relationship? If yes, which structure makes sense for the scale and duration?

• I work remotely for a US employer from Canada, the reverse scenario
• Canada-US totalization agreement, the CPP vs Social Security question for cross-border employees
• Leaving Canada permanently: a tax checklist, the broader departure process

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.