How are CPP and OAS taxed if I retire in the US?

Why a US resident pays only US tax on CPP and OAS

The Canada-US tax treaty assigns social security benefits to the country where the recipient lives. Article XVIII says that benefits paid under the social security legislation of one country to a resident of the other are taxable only in that other country. CPP, QPP and OAS are Canada's social security legislation, so a Canadian pension paid to a Florida or Arizona resident is taxed in the US and nowhere else.

This is unusual. Most Canadian pension income paid to a non-resident is hit with Part XIII withholding at source: 25% by default, cut to 15% on periodic pension payments by the treaty. CPP and OAS escape that entirely. Service Canada should pay you the gross amount, and the NR4 slip you receive each year should show an exemption code rather than tax withheld. If tax is being deducted, your residency status on file is wrong, and fixing it recovers the money.

The rule turns on being a US resident for tax purposes, which normally means you have also stopped being a Canadian resident. That switch has its own consequences, starting with the deemed disposition we explain in our departure tax guide. Until the CRA agrees you have left, the treaty tie-breaker decides which side you are on.

How the US taxes Canadian benefits: the 85% rule

The IRS does not treat CPP and OAS as foreign pensions. Under the treaty they are taxed as if they were US Social Security benefits, which means the same inclusion formula applies:

• You report the gross Canadian benefit, converted to US dollars, on the Social Security lines of Form 1040, alongside any SSA-1099 income.
• Depending on your combined income, somewhere between 0% and 85% of the total is taxable. The remaining 15% or more is never taxed by either country.
• The taxable portion is ordinary income at your regular US rates. There is no separate withholding, so retirees with significant CPP and OAS often need US estimated tax payments.

State treatment varies. Several states exempt Social Security benefits and extend that treatment to foreign social security received under a treaty; others do not follow the federal rules. Confirm your own state before assuming the state return mirrors the federal one.

Because no Canadian tax is paid, there is no foreign tax credit to claim on the US side for these benefits. Keep the annual NR4 slips and the Service Canada payment statements as your record of the gross amounts received.

Does the OAS clawback follow you to the US?

The OAS recovery tax, often called the clawback, is a Canadian tax that reduces OAS for high-income recipients. Because the treaty gives the US the exclusive right to tax OAS paid to a US resident, the recovery tax does not apply to you once you are a US resident. Residents of countries with this kind of treaty provision are exempt from it.

The paperwork is a separate question. Non-residents who receive OAS may be asked to file the OAS Return of Income (Form T1136) each year so Service Canada can confirm their status and worldwide income. As at the time of writing, the CRA's guidance is that residents of exempt countries may still be required to file the return even though no recovery tax results; ignoring a request can lead to OAS payments being suspended. We treat the T1136 as a standing annual item until the CRA confirms in writing that it is not needed.

The bigger risk is eligibility to be paid at all. OAS continues indefinitely outside Canada only if you lived in Canada for at least 20 years after turning 18. With fewer than 20 years, payments stop after you have been outside Canada for six months and resume only if you return. The Canada-US social security agreement can let periods of US coverage count toward that 20-year test, which matters for people who split a career across the border. Apply for OAS before you leave if you are close to 65, so the file is set up with your future address.

CPP has no residency test. It is payable anywhere in the world, deposited to a US bank account if you set that up with Service Canada, and it keeps its treaty treatment for as long as you remain a US resident.

What this looks like next to your RRSP and RRIF

Retirees rarely move with CPP and OAS alone, and the other accounts follow different rules. A useful side-by-side, for a Canadian who has become a US resident:

• CPP, QPP and OAS: no Canadian tax; taxed in the US like Social Security with the 85% cap on inclusion.
• RRIF minimum and other periodic pension payments: 15% Canadian withholding under the treaty; fully reported in the US with a foreign tax credit for the Canadian tax.
• RRSP lump-sum withdrawals: 25% Canadian withholding; also reported in the US, where only the growth since you became a US resident is generally taxable.
• TFSA: no Canadian tax, but no US recognition of the shelter either, so the income inside it lands on your 1040 every year.

The order in which you draw from these accounts is the real planning question, because each source has its own effective rate once both countries are counted. We walk through the retirement account side in what happens to my RRSP and TFSA when I leave Canada. For the reverse situation, a Canadian resident collecting a US benefit, see how US Social Security is taxed in Canada, where the roles flip and Canada taxes 85% of the benefit instead.

How we handle CPP and OAS for clients retiring south

We start with the residency date, because everything above depends on it: the CRA and the IRS must both agree on the year you switched. From there we confirm Service Canada has your non-resident status and US address, check the first NR4 for stray withholding, file the T1136 when it is requested, and build the Social Security worksheet on the Form 1040 so the 85% inclusion is applied to the combined Canadian and US benefits. Our cross-border tax team prepares the final Canadian departure return and the ongoing US returns together, so the two filings tell one consistent story.

Source: IRS — Publication 915, Social Security and Equivalent Railroad Retirement Benefits; CRA — Form T1136, Old Age Security Return of Income.