This is regarding resident status for tax purposes. If my husband works in the US on a TN visa and is paid by the US company under a W2 status, which I believe makes him an alien resident of the US, but I remain a Canadian resident for tax, does that make him a dual resident? Does he file a Canadian tax return and claim income tax credits for the tax paid on the US income?

#1;The TN status is sometimes informally referred to as a TN visa. However, because a Canadian does not formally need to request a TN visa at a US consulate, it is technically not a visa, but rather a status.So, regardless of your Canadian resident status, as long as he, as a TN status, is treated as a US resident for tax purposes.he needs to report his world wide income and US source income on his US returns as a US resident.
NOTE: he is a dual status alien when he has been both a resident alien and a nonresident alien in the same tax year. Dual status does not refer to US citizenship, only to his resident status for tax purposes in the US. In determining his U.S. income tax liability for a dual-status tax year, different rules apply for the part of the year he is a resident of the US for even tax purposes and the part of the year he is a nonresident. The most common dual-status tax years are the years of arrival and departure.For example, for the part of the year he is a resident alien, he is taxed on income from all sources. Income from sources outside the US is taxable if he receives it while he is a resident alien. The income is taxable even if he earned it while he was a nonresident alien or if he became a nonresident alien after receiving it and before the end of the year.For the part of the year he is a nonresident alien, he is taxed on income from U.S. sources only. Income from U.S. sources is taxable whether he receives it while a nonresident alien or a resident alien unless specifically exempt under the Internal Revenue Code or a tax treaty provision. Generally, tax treaty provisions apply only to the part of the year he was a nonresident. However, an exception to this rule exists.
Taxation of Dual-Status Aliens

#2:Yes; he, as a US resident for tax purposes, needs to report his world wide income and US source income on his US returns, fed and state, returns as long as he is treated as a YUS resident for tax purposes however, he can claim foreign tax credit that he pays to Canada on his US returns as he is NOT subject to double taxation. He needs to file form 1116 to report his foreign tax credit on his 1040 or Sch A on line 8, other taxes for deduction on his US returns. However, as a Canadian resident(a non US resident for tax purposes), you do not need to report your income that you earn in Canada on his US returns UNLESS you earn taxable income in US.

Thanks for the information. A further 2 questions for you:

In your opinion, would it be better for taxes if my husband worked under W2, or through our Canadian corporation? He can be paid by the staffing company in the US as a contractor corp to Canadian corp, but my understanding is that there are some complex papers that have to be handled by an international tax expert such as registering our Canadian corp as doing business in the US and set up a payroll, EIN, etc. in the US. Plus it means annual corporate tax returns to be done in the US which also incurs international tax accounting costs. Is it all worth it?

It has also been suggested that we set up a US LLP and run the revenue through that with two of us being 50/50 partners (as we are in the Canadian corp) so income splitting is possible. But I don't think that someone on TN status, sponsored by a US staffing company, can own an LLP in the US - wouldn't the LLP have to be the sponsor?

#1;Agreed; Foreign business entities are incorporated at the state level in the U.S. The process will vary from state-to-state, but generally involves two steps: applying to register in that particular state, and establishing a registered agent with a valid address in that state (no PO Box numbers). A registered agent can be either the business owner or another person who is authorized to receive legal papers on behalf of the business, such as an attorney or secretary. You may want to specify the reason for doing so. In many cases it is wiser to set up a Delaware corporation than those expensive, heavily-taxed California corporations. Most startups are actually incorporated in Delaware. (including California startups and overseas startups wanting to do business in the US)

Secondly, you want to select the type of incorporation that you need; LLP, LLC, C type Corporation, or S type corporation. They have different type of structure, different state and federal fees and tax filing practice, different administrative requirements and different personal liability limits. You also need to know that you will be required to file corporate taxes (Even if you are losing money and don't awe tax, - you still need to submit the paperwork to support that) so you should have an accountant in any case.
ALSO, Corp-to-Corp means that his client, a corporation, pays his business, which is organized as a corportation, for the services rendered by him. His client may prefer this as it protects them from the same risks regarding the employer-employee relationship as in the W-2 option above(as they treat him as their EE).
NOTE:as you can see,W-2 means that the contractor is an employee of either the client or a job shop and will have employment taxes withheld from their pay. Also, the deductiblity of certain expenses are subject to the unreimbursed employee business expense limitations.

1099 means the contractor is a sole proprietor and reports their income on Sch C/ Sch SE of their personal tax return. The client is not responsible for withholding any income or employment taxes but does have to report payments made to the contractor to the IRS on Form 1099-MISC. The contractor is responsible for paying their own income & self-employment taxes.

Corp-to-Corp means that both the client and the contractor, your spouse, are corporations. The client has no tax withholding or reporting requirements to the IRS. The contractor is an corporation and usually the worker is an owner of the contractor company. The contractor company files a corporate tax return and pays the worker a salary. Corp-to-Corp Pros:
No self-employment tax. ;Using small business retirement plans, you can defer tax on a larger percentage of income. ;Double taxation of earnings is avoided as compared to regular corporations.
Corp-to-Corp Cons:
Most complicated option. Much more bookkeeping and tax reporting required. ;More difficult to organize and dissolve. ;Some states have a minimum tax you will have pay regardless of profitability. ;You must receive at least some salary from the corporation, which means the corporation is subject to payroll taxes and filing;S-Corp shareholders pay tax on undistributed profits; If you don't make the S-Corp election you can get stuck with the 35% Personal Services Corporation flat tax rate.
The biggest draw back of setting up your own corporation is the extra time, yours or someone else's, required to set up and maintain the records of your corporation and all the required tax filings. If you like this kind of stuff, it's not a big deal. If you hate doing this kind of stuff you should probably hire someone else to do it for you.

A good CPA / an IRS EA can advise you on which type of incorporation is right for you and where is the best place for you to incorporate. Please visit the websites here formore info
https://www.getincnow.com/Delaware-C...lification.php
Franchise Taxes

#2; LLPs limit the liability of all business partners. Limited liability means that the owners are not personally liable for the debts and obligations of the company, and a partner is not required to pay business debts or lawsuit damages with personal assets. All states require formal registration of LLPs. Each state has different specific requirements for qualifying and registering limited liabiilty partnerships. Most states require registering the business name, a declaration of LLP and insurance coverage to form one of these partnerships.I guess as long as he is a US resident for tax purposes, yur spouse can set up an LLP in US; for example, Canadian couples, non-US residents set up Arizona LLP to purchase rental property in US.Anyway, you can check it with the IRS an intl. taxation representative at the IRS.

If my husband decides to go W2 in the US, we have 2 questions:

If the paying employer is based in California but my husband is working in Texas for the client, does he pay state taxes in California? (There are no state taxes in Texas)

When he files a Canadian tax return claiming the Foreign Tax credit for taxes paid in the US, if the tax paid in the US is less than he would have paid in Canada for the same salary, is he compelled to pay Canada the difference?

Thanks for all your help.

#1;Then, as there is no Reciprocal Agreement between CA and TX, your husband, as a full year resident of TX , need to pay tax to CA on his W2 income that he earns in CA and he also needs to claim his CA that he pays to CA on his T federal return as you said, no income tax in TX; to claim his CA tax tha he pays to CA on his federal return, he MUST itmize deductions on Sch A of 1040. UNLESS he itemizes deductions on Sch A of 1040, he can’t deduct his CA tax on his return.

#2; I am NOT a Canadian tax practitioner so in my opinion, probably in that case, he needs to pay the difference as US tax liability<Canadian tax liability. You need to contact a Canadian tax practitioner for more accurate info in detail.