Is she required to pay income taxes to the IRS on her income earned in Canada? What about Canadian income taxes?

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Q. My friend's daughter was born in the US and is now living with her family in Canada. I believe she's a Canadian citizen and will likely start working here soon (she's in her teens). Is she required to pay income taxes to the IRS on her income earned in Canada? What about Canadian income taxes?

A. Is she required to pay income taxes to the IRS on her income earned in Canada? What about Canadian income taxes? Canada imposes income taxes on residents, so if she is working in Canada, thereby earning income, she will have to pay Canadian income taxes on her international income. The US government is somewhat more aggressive about things; they consider that they can assess taxes on US citizens' income whereever they may be. That initially sounds potentially rather bad; it usually isn't. Tax treaties allow taxes paid to one country to be considered a credit for the purposes of the other country. Thus, if she pays $5,000 of taxes to Canada, the IRS would deduct that from the potential US tax bill. The net effect of such tax treaties is that the individual winds up paying the higher of the two countrys' tax rates, which has long been the Canadian rate. In addition, there has generally been some sort of exemption, on the US side; nonresidents ("expatriates") are exempt of US taxes on something like the first $75K of foreign-sourced income. If she's in a "middle class" sort of situation, she's unlikely to have extra taxes to pay to the IRS; complications warranting pricey tax counsel could certainly arise if she's a "trust fund" sort of kid.

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