US-Canada Totalization Agreement: Key Details and Filing Requirements

The US-Canada Totalization Agreement prevents individuals who work in both countries from paying Social Security taxes twice and ensures they receive benefits upon retirement. It is particularly relevant for those who divide their careers between the U.S. and Canada, including employees on temporary assignments and the self-employed.

Coverage Eligibility

A worker’s Social Security coverage depends on employment type, assignment duration, and residency. Generally, coverage is based on where work is performed, but exceptions exist for temporary assignments and self-employed individuals.

Employees on temporary assignments can remain under their home country’s system for up to five years if their employer obtains a Certificate of Coverage. Without this exemption, they would have to contribute to the system of the country where they are working, leading to unnecessary payments.

Self-employed individuals follow different rules. Instead of contributing based on where they work, they pay into their country of residence’s system. A U.S. resident working as a freelancer in Canada, for example, continues paying into U.S. Social Security rather than the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP), avoiding double taxation.

Filing Requirements

Workers covered under the agreement need a Certificate of Coverage to confirm which country’s system applies. This document is issued by either the U.S. Social Security Administration (SSA) or Canada’s Employment and Social Development Canada (ESDC). Employers typically handle this for employees, while self-employed individuals must apply on their own.

To request a Certificate of Coverage in the U.S., individuals or their employers must submit Form USA/CAN 101 to the SSA, providing employment details. Processing times vary, so applying early is recommended. In Canada, the request is made through the ESDC, which issues a similar certificate for continued CPP or QPP coverage.

Without this certificate, both countries may require Social Security contributions, creating financial strain. Employers could be forced to withhold payroll taxes in both jurisdictions, and self-employed individuals might face dual obligations. If contributions are mistakenly made to both systems, obtaining a refund can be complex.

Tax Reporting Considerations

The agreement prevents dual contributions but does not eliminate the need for proper tax reporting. U.S. taxpayers working in Canada must document their exemption from U.S. self-employment tax on IRS Form 1040. Similarly, Canadian residents with U.S. earnings must report their exemption from CPP or QPP contributions on their Canadian tax returns to avoid issues with the Canada Revenue Agency (CRA).

For those claiming treaty benefits, Form 8833 must be attached to their U.S. tax return to explain how the agreement applies. This is especially relevant for self-employed individuals who would otherwise owe U.S. self-employment tax. Canadian taxpayers exempt from U.S. Social Security taxes should keep records of their Certificate of Coverage in case of an audit. Employers must ensure payroll systems correctly apply exemptions to avoid costly corrections.

Tax credits help offset foreign Social Security taxes. The U.S. Foreign Tax Credit (FTC), claimed on Form 1116, reduces U.S. tax liability for foreign Social Security taxes paid. Canada’s foreign tax credit system provides similar relief for residents contributing to U.S. Social Security. Understanding these credits helps taxpayers minimize their overall tax burden.

Reciprocal Provisions

The agreement allows individuals who have worked in both countries to qualify for benefits even if they do not meet minimum contribution requirements in either system. By combining, or “totalizing,” work periods, individuals who might not otherwise qualify for benefits can still receive retirement income.

In the U.S., a worker typically needs 40 quarters (10 years) of covered earnings to qualify for Social Security retirement benefits. Under the agreement, CPP or QPP contributions can count toward this requirement. For example, if a worker has 20 quarters of U.S. coverage but has contributed to CPP for five years, they may still qualify for a prorated U.S. benefit. Similarly, Canada counts U.S. work credits toward the minimum contribution period for CPP or QPP benefits, ensuring individuals receive retirement income based on their total career earnings.