@ Ron_Bowman
Thank you for the idea. I thought about a new course section, but if I do that I fall back into the same scenario I currently have. The course runs from 1/4 - 5/31 so I have to show a Teacher of record for that whole time span otherwise I get an error in PS. Since the new teacher didn't start until 2/4, PS asks who the teacher was from 1/4 to 2/3.
In doing more research, I found that the old teacher didn't use grade pass back so when the new teacher started to use it, he didn't have the assignment categories set to match what is set up in PS.
So to answer the original question, "How do you set up teachers in Canvas when they change mid year,?" For PowerSchool, I will be keeping the original teacher "Active" in PS so they appear in teacher lists, but just make it so they cannot log into PS. In Canvas this keeps the original teacher attached to original course and just adds new teacher to the course which allows all original grades/assignments to be remain. Grades will sync as long as assignment categories match PS.