Canadian pensions (CPP, QPP, OAS) for U.S. residents are generally taxed by the U.S. as if they were U.S. Social Security benefits, with up to 85% of the benefits subject to tax. Under the U.S.-Canada tax treaty, these benefits are typically exempt from Canadian non-resident withholding tax, shifting taxation entirely to the U.S..
If your total income is above certain limits, a maximum of 85% of your benefits will be subject to tax. Canadian benefits that are treated as US Social Security Benefits are reported on Lines 6a and 6b on Form 1040. To enter this information in the TaxAct program, follow the steps below.
Foreign pensions are generally subject to income tax in the US by the IRS. The rules for taxing a foreign pension will vary depending on several factors, including income tax treaties. It is impossible to “roll” a foreign pension into a US-based retirement savings account.
Non-resident tax
The tax rate is 25% unless reduced or exempted by a tax treaty between Canada and your country of residence.
The Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit that replaces part of your income when you retire.
There is no specific age. It depends on how much income you have earned in a tax year (January 1 – December 31). If you earn more than the amount of the personal exemption allowed by the Canada Revenue Agency within one tax year, you will need to report that income on an annual tax return and you may have to pay taxes.
Because CPP is a "member-contributed plan" it will always be yours, regardless of where you live in the world. If you paid in at least 1 CPP contribution, you are entitled to a benefit.
Unlike the U.S., Canada doesn't tax based on citizenship, but if you live and earn income there, you'll be paying Canadian taxes. That includes both federal income tax and provincial or territorial tax, which together determine your total rate. (Yes, even the province you move to affects your tax bill.)
For example, withholding tax on periodic pension income you receive is often taxed at a rate of 15%. You may, however, need to file a tax return and pay tax in Canada on certain types of income, such as capital gains on Canadian real estate. You may also need to pay tax in your country of residence.
The key to a tax-free pension rollover is to keep your pension distribution intact in a rollover account until you reach age 59 1/2. Or, should you absolutely need to tap into your pension funds before then, do so sparingly and wisely.
For U.S. residents, report your CPP and OAS on Form 1040, lines 6a and 6b (where Social Security benefits appear). Convert CAD amounts to U.S. dollars using the average exchange rate for the year. Service Canada sends an NR4 slip in February showing your annual payments.
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Yes, you can receive your Canada Pension Plan (CPP) payments while living outside Canada, as long as you meet the eligibility requirements. The CPP is a contributory plan, meaning you must have made sufficient contributions during your working years in Canada to qualify for benefits.
If the IRS considers your foreign pension a foreign trust and you receive distributions or contribute to the account, you must file Form 3520. If you don't make contributions or receive distributions (e.g., it's fully employer-funded), Form 3520 may not be necessary.
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live.
While the U.S. can legally tax you twice on the same income, most American expats never pay taxes twice. The IRS provides powerful tools like the Foreign Earned Income Exclusion and Foreign Tax Credit that eliminate or significantly reduce double taxation for Americans living abroad.
Leaving or returning to Canada
Your Old Age Security (and Guaranteed Income Supplement) may stop if you're away for more than 6 months and don't qualify for receiving your payments while outside Canada.
Yes. The United States taxes its citizens on worldwide income regardless of where they live. You'll need to file a U.S. federal tax return each year, even if all your income comes from foreign pensions or investments.
Taxes are not automatically deducted from your payments, but you can request for the federal income tax to be deducted from your benefit payments. If you live outside of Canada and/or are a not considered a Canadian resident for income tax purposes, a 25% non-resident tax is deducted from your OAS payments.
For a $70,000 income in Canada (using 2025 rates), you'll pay roughly $13,000 to $20,000 in total taxes (federal, provincial, CPP, EI), depending on your province, resulting in a take-home pay around $50,000-$59,000, with federal tax around 14.5% or 20.5% depending on the portion, plus provincial tax and deductions like CPP and EI.
You'll pay federal income tax on your pension, usually at your normal rate, because most pensions are funded with pre-tax dollars, with 10% default withholding for periodic payments and 20% for lump sums unless you specify otherwise on a Form W-4R, but state taxes vary and some states don't tax pensions. The taxable amount depends on your contributions (after-tax contributions reduce taxable income) and total income, potentially pushing you into higher tax brackets.
Retirees' monthly retirement benefit payments are treated as ordinary income. Unless you specify the income tax withholding election you want applied to your benefit, federal and/or California state income tax will be withheld from your benefit payment as the default filing status defined in the tax form instructions.