A Practical Guide to US Taxes for Australians Living in the United States
For Australians living and working in the United States, the US tax system can feel needlessly complex. The challenge lies not only in meeting stricter compliance obligations but also in understanding when US tax rules apply, what you must report, and how these rules affect assets and income you still hold in Australia. This guide outlines the key tax concepts Australians who are US tax residents need to understand, based on common questions and mistakes we see year after year.
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US Tax Residency: The Starting Point
Everything in the US tax system flows from one foundational question: are you a US tax resident?
If you are a US tax resident, you must generally declare:
- Worldwide income
- Foreign assets
- Certain Australian entities/tax structures
If you are not a US tax resident, you typically only declare US‑sourced income.
US Citizenship and Long‑Term Green Card Holders Override Tax Residency Tests
Importantly, US citizenship or holding a green card for 8 or more calendar years (long‑term permanent resident status) means you are taxed as a US tax resident regardless of where you live. You are subject to US tax on global income even if:
- You reside outside the United States
- You do not meet the substantial presence test
- Your income and assets are entirely overseas
This rule also means that ceasing US tax residency generally requires formally renouncing citizenship or executing a formal green card relinquishment/abandonment, and long‑term residents may face expatriation tax consequences.
The Substantial Presence Test
Most Australians on E‑3 visas become US tax residents under the substantial presence test, which broadly looks at whether you have been present in the US for more than 183 days, either in the current year or over a rolling look‑back period.
If you pass this test, you are treated as a US tax resident for that year, even if:
- Your income is paid into Australian bank accounts
- Your investments or property are located outside the US
US tax residency is assessed year by year and can end if you no longer meet the test.
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Worldwide Income Must Be Declared
Once you are a US tax resident, you must declare all income globally, including:
- Australian rental income
- Interest from Australian bank accounts
- Dividends and capital gains from Australian shares or ETFs
- Business or trust income
You must report this income on your US return, even if Australia has already taxed it.
The US–Australia Tax Treaty
The Australia–US tax treaty helps prevent double taxation at the federal level. In most cases, you can claim any tax paid to the ATO as a foreign tax credit on your US federal return.
However, it is important to note:
- Many US states (including California and New York) do not recognise the treaty
- This can result in additional state tax even where federal tax is offset
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Key Reporting Obligations for Australians in the US
FBAR (Foreign Bank Account Report)
If the combined balance of your non‑US financial accounts exceeds USD 10,000 at any point during the year, you must file an FBAR.
This includes:
- Australian bank accounts
- Australian superannuation
- Accounts where money has moved between them
The FBAR is:
- A disclosure form, not a tax
- Filed separately from your tax return
- Subject to significant penalties if missed
Form 8938
Form 8938 applies at higher thresholds:
- USD 50,000 for single filers
- USD 100,000 for married couples filing jointly
It closely mirrors the FBAR but is filed with your tax return and requires you to report where the associated income has been declared.
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Superannuation Reporting Obligations for Australians
Australian superannuation is one of the most misunderstood areas of US tax reporting.
The US has not issued clear guidance on how to treat super, which means:
- Treatment often depends on the structure of the fund and the proportion of employer vs personal contributions
- Self‑managed super funds can trigger significant additional reporting
- Conservative disclosure is generally preferred
- Additional reporting obligations can arise depending on underlying investments
At a minimum, super balances often trigger FBAR and potentially Form 8938 obligations.
This is an area where specialist advice is critical, as incorrect treatment can result in complex and costly penalties.
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Deductions and Withholding Under US Taxes for Australians
Standard Deduction vs Itemising
Most US tax residents are entitled to a standard deduction, which reduces taxable income.
Alternatively, some taxpayers may benefit from itemising deductions, which can include:
- State and local taxes
- Mortgage interest on a US property
- Medical expenses
- Charitable donations
Your accountant will assess which option produces the better outcome.
Understanding US Pay Slips and Tax Withholding
US payslips typically include multiple layers of withholding, such as:
- Federal income tax
- State income tax (where applicable)
- Social Security and Medicare
- City or local taxes in some jurisdictions
Unlike Australia, taxes are split across multiple authorities.
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Property, Investments and Capital Gains
Americans and foreign nationals alike can purchase US property, including E‑3 visa holders.
Owning property or investments introduces additional considerations:
- Capital gains in Australia are also reportable in the US
- A federal surtax may apply in some cases
- State taxes can significantly change outcomes depending on your location
Timing and location matter, particularly for large transactions.
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Inheritances and Gifts: US Reporting Obligations for Australians
The US does not impose federal inheritance tax on recipients, but it does require disclosure.
If you receive:
- An inheritance
- A gift from a non‑US person
And the value exceeds USD 100,000; you must lodge Form 3520.
This is a reporting obligation, not a tax, but it is strictly enforced.
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Common Mistakes: Australians Make on their US Taxes
Some of the most frequent issues Australians encounter include:
- Assuming Australian income does not need to be declared
- Missing FBARs for multiple years
- Incorrect handling of superannuation
- Using generalist accountants unfamiliar with international tax
- Filing too early and missing later documents
In most cases, mistakes are unintentional and can often be corrected, but timing matters.
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Key Dates to Be Aware of
- January 31: Employers must issue W‑2 forms
- February: Most 1099 forms are issued
- April 15: US tax filing and payment deadline
Extensions provide more time to file, not more time to pay, and interest applies on unpaid amounts.
Final Thoughts on US Taxes for Australians Living in the US
US tax compliance for Australians is not something to take lightly. The US tax system relies heavily on strict rules, and authorities can impose severe penalties even if no tax is ultimately owed.
The most important step is to understand your tax residency and make the correct disclosures from the start. Tax decisions should never stand alone; integrate them into your broader financial and lifestyle planning, especially if you hold significant assets on both sides of the Pacific.
Contact Us
If managing your financial affairs across borders is starting to feel overwhelming, you’re definitely not alone. It’s a complex space, and having the right support can make all the difference. At Atlas Wealth Group, we specialise in supporting Australian expats with cross-border tax planning, superannuation, and wealth management. Contact us to arrange a consultation with a qualified adviser who specialises in Australian expat financial planning to get personalised guidance tailored to your circumstances.
Stay updated on current issues with Atlas Wealth Groups’ podcasts, Atlas Weekly Recap or check out Expat Chat.
Disclaimer: This article is intended for informational purposes only and does not constitute legal or financial advice. Individuals should consult licensed professionals when seeking guidance regarding their financial circumstances.