Given two jobs earning equivalent amounts where one is in the US and another in Canada, where would I take home more money after taxes?
Federal taxes are generally lower in Canada. Canada's top federal income tax rate is 29%; the US rate is 35% and will go to 39.6% when Bush tax cuts expire. The healthcare surcharge will kick in in a few years, pushing the top bracket by a few more points and over 40%.
State/provincial taxes are lower in the US. You may end up in the 12% bracket in New York City or around 10% in California or other "bad" income-tax states. But Alberta is considered a tax haven in Canada and has a 10% flat tax. Ontario's top rate is about 11%, but there are surtaxes that can push the effective rate to about 17%.
Investment income taxes: Canada wins, narrowly. Income from capital gains counts as half, so if you're very rich and live in Ontario, your rate is about 23% and less than that in Alberta. The only way to match or beat this deal in the US in the long term is to live in a no-income-tax state. Dividends are taxed at rates somewhere between capital gains and ordinary income - not as good a deal as Bush's 15% rate on preferred dividends, but that 15% rate will probably expire soon.
Sales taxes: US wins, but the gap is closing. Canada has a national VAT-like tax, called GST and its rate came down from 7% to 5% when Harper became the Prime Minister. Provinces have sales taxes on top of that, in the range of 7-8% (but Alberta has no sales tax). Some provinces "harmonized" their sales taxes with the GST and charge a single rate, e.g. Ontario has a harmonized sales tax (HST) of 13% (5+8). 13% is of course a worse rate than the 6-8% charged by most states, but then some states and counties already charge 10% and the rates have been going up in each recession.
Payroll taxes: much lower in Canada. Canadian employees' CPP and EI deductions have a low threshold and top out at about $3,000. Americans' 7.65% FICA rate applies to even $100K, resulting in a tax of $7,650.
Property taxes: too dependent on the location, hard to tell.
Tax benefits for retirement savings: Canada. If you work in the US and don't have a 401(k), you get a really bad deal: your retirement is underfunded and you're stuck with a higher tax bill, because you can't get the deduction. In Canada, if you don't have an RRSP at work, you take the money to the financial company of your choice, invest it there, and take the deduction on your taxes. If you don't like the investment options in your 401(k), you're stuck with them. If you don't like them in your RRSP, contribute the minimum to get the match and put the rest of the money into your individual RRSP; you still get the same deduction. Annual 401(k) contribution limits are use-it-or-lose-it, while unused RRSP limits and deductions can be carried forward and used when you need to jump tax brackets. Canada used to lack an answer to Roth IRAs, but the introduction of TFSAs took care of that.
Mortgage interest deduction: US wins here as mortgage interest is not deductible in Canada.
Marriage penalty: US wins. Canadian tax returns are of single or married-filing-separately type. So if you have one working spouse in the family or a big disparity between spouses' incomes, you can save money by filing a joint return. But such option is not available in Canada (there are ways to transfer some income between spouses and fund spousal retirement accounts, but if the income disparity is big, that won't be enough).
Higher education: cheaper in Canada. This is not a tax item, but it's a big expense for many families and something the government can do about with your tax dollars.
To sum it up, you may face higher or lower or about the same taxes after moving from US to Canada, depending on your circumstances. Another message here is that the high-tax, socialist, investment-unfriendly Canada is mostly a convenient myth.
In general you will take home more in the US than in Canada.
There are so many variables that is is impossible to provide a comprehensive answer that will cover all bases: so here are a few hand-waving statements.
Two example calculator web sites for Canada and the US (chosen somewhat at random through Google, show that making $50,000 of either currency for the upcoming tax year in Canada you would expect to pay about $9,100 and for the US $5,900. Missing there are the state taxes, however, which also vary wildly.
The deductions, adjustment and credits in both countries can really add up, so if you have specific questions, you should consult a tax specialist.
Similarly, both countries provide various tax sheltered investment structures that change the game somewhat over the long term.
One other consideration. If you are a US citizen or Resident Alien, you are going to owe US income taxes regardless of where you earn the money.
Here it is straight from the horse's mouth: Tax guide for US Citizens living abroad
The two really aren't easily comparable - you have to look at cost of living. sdg's calculations account for provincial and federal taxes in Canada, but elide state taxes in the US. There's also sales taxes, which are usually higher in Canada, and property taxes, which tend to be higher in the US (from my experience). You also have to include health insurance into your calculations, since that expense is included in your taxes in Canada.
Having lived in both places, I have to say you can find a higher income in the US for the same job and can live in a small town versus having to live in a big city in Canada to find decent salaries. For similar sized cities, the cost of housing is significantly lower in the US than Canada. That is your biggest factor in cost of living. If you are thinking of NYC or San Francisco, there are no comparable size cities in Canada and you would probably be better off in Canada.
My tax preparer was amazed at how much I paid in Capital Gains taxes when I left Canada. Maybe it is different now but I doubt it.
The biggest free lunch in the US is a generous capital gains exemption when you sell your primary residence without any lifetime cap or cap on the number of times you can do it. There are rules on how long you have to live in it before selling.
For investment real estate, all expenses are deductible in addition to fictional depreciation so with a mortgage you can have positive cash flow and pay no income tax. You can keep doing tax deferred exchanges into bigger and bigger rentals. When you are close to retirement, you can exchange into your ultimate beach home, rent it out a few years, then convert to a primary residence.
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protected by Chris W. Rea Nov 22 '16 at 21:31
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