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Do Canadians pay US withholding tax on option premiums?

Usually not on the premium itself. US withholding is aimed at dividends, not at the money you collect for selling a listed option. The tax shows up later, if a put gets assigned and the shares you now own pay a dividend.

Options guide · 8-minute read · Updated 2026-10-28

The short answer

When you sell a call or a put on a US stock from a Canadian account, the premium generally lands in full. The US doesn't treat it as a dividend. It treats it as part of a gain or loss that's settled when the option ends.

The US does withhold on dividends paid by US companies to people outside the US. So the moment you own US shares, through a put that got assigned or shares you hold for a covered call, the dividend is where the US takes its cut. How much you lose depends on the account.

This is one piece of my map of selling options in Canada. The trades are the same ones that make up the wheel strategy.

Why the premium isn't withheld

The US withholds tax on certain kinds of payments to non-residents. The big one for investors is the dividend. A premium for writing a listed option isn't on that list in the ordinary case.

Here's the logic, in plain words:

• You sell an option and collect a premium.
• When the option expires, is bought back, or is assigned, the premium becomes part of a gain or a loss.
• The US generally doesn't tax a non-resident's trading gains on US stocks.

So there's nothing for the broker to hold back. If you look at your trade confirmation, the full premium, minus commission, is what you received.

There is one US rule to know by name: section 871(m), on "dividend equivalents." It can treat some stock-like positions as if they paid a dividend. It's aimed at positions that move almost one-for-one with the stock, not at an ordinary Covered call or Cash-secured put. If your broker ever applies it, you'll see a tax line on the statement, not a guess.

The place to check the US rules is IRS Publication 515. The place to check what actually happened in your account is your broker's tax slips and trade history.

Where the US tax does show up: dividends

Say a put on a US stock is assigned. You now own 100 shares. When that company pays a dividend, the US withholds tax before the money reaches you.

For Canadians, the Canada–US tax treaty usually cuts that tax to 15% (as of October 2026), but only if your broker has your W-8BEN form on file. That's a short US form that says you live in Canada. Without it, the rate can be 30%. Brokers usually have you sign it when you open the account. If you're not sure, ask.

What happens to that 15% depends on the account:

Canadian stocks with options on the Montreal Exchange skip all of this. A Canadian company's dividend isn't touched by US tax.

My page on US covered call ETFs in a TFSA walks through the same dividend leak for funds.

A worked example: one wheel cycle in a TFSA (hypothetical)

All numbers are made up. Your TFSA holds US cash. You sell one put on a made-up US stock, XYZ, with a $40 strike for $1.00. You collect $100. Nothing is withheld.

XYZ drops to $38 and you're assigned. You now own 100 shares at $40, or $39 after the premium. XYZ pays a quarterly dividend of $0.50 a share, so $50 for your 100 shares. The US keeps $7.50. You get $42.50.

You also sell a call on the shares and collect another $80. Again, nothing is withheld. Then XYZ keeps sliding, to $34.

Two lessons sit in that table.

First, the withholding is small next to the stock's move. The $7.50 is real money you'll never see again, but the $600 drop in the shares is what decides the trade.

Second, the TFSA hides the loss too. In a non-registered account, a loss on the shares could become a capital loss when you sell. In a TFSA it can't be claimed. The withholding is lost, and so is the loss.

What about the currency?

Withholding and currency get mixed up, because both shrink what you see in Canadian dollars. They're different things.

• Withholding is US tax, taken from a dividend.
• Currency conversion is your broker's fee or spread for swapping Canadian dollars into US dollars, and back.

A put on a US stock needs US cash to back it. If your account converts every trade, you pay the spread going in and coming out. That can cost more than the withholding ever will. Ask your broker whether the account has a US-dollar side.

What to do before you sell options on US stocks

1. Check the W-8BEN is on file with your broker. It's what gets you the 15% rate instead of 30%.
2. Pick the account with the dividend in mind. If you expect to hold US dividend payers after assignment, an RRSP leaks less than a TFSA.
3. Read one statement. Find a premium and a dividend. You'll see the premium in full and the dividend with a US tax line.
4. Ask about US cash in each account, so you're not converting every premium.
5. For your Canadian return, see taxes on selling options in Canada. For the account choice, see TFSA vs RRSP for options.

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