US Expat Tax: How to File US Taxes as an Aussie Expat

The United States is a popular destination for Australians seeking opportunities for work, investment, or simply a change of lifestyle. However, one thing that any Aussie expat should be ready for is the American taxation system, which can be quite complex, especially for foreigners.

The US Internal Revenue Service (IRS) operates on a worldwide taxation system. This means that US taxes are based on citizenship and residency rather than location. Whether you’re an Aussie expat working in California or a US citizen working in Sydney, you are expected to file US taxes. 

It can seem daunting, especially when faced with the added complexity of foreign income, potential double taxation, and different tax treaties. But, with a proper understanding of the process, it becomes less challenging.

Understanding the US Tax System

The US tax system is based on both federal and state-level taxes. Federal taxes are constant across the country, while state taxes depend on the specific tax laws of the state in which you live. As an Australian expat, you need to file both federal and possibly state taxes.

Federal income tax rates in the US are progressive, which means the rate of taxation increases as the taxable income increases. The federal tax rates ranged from 10% to 37%, based on different income brackets. 

State income tax rates, meanwhile, vary widely. Some states, like Texas and Florida, don’t have an income tax, while others, like California and New York, do.

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Foreign Earned Income Exclusion

One significant provision in the US tax system for expats is the Foreign Earned Income Exclusion (FEIE). This allows US taxpayers living abroad to exclude a certain amount of their foreign earned income from their US federal income tax. 

However, this only applies if you have foreign income and you are a bona fide resident of another country or countries for an uninterrupted period that includes an entire tax year.

Tax Treaties

The United States has tax treaties with many countries, including Australia. These treaties are designed to avoid double taxation for people living and working in both countries. 

The US-Australia tax treaty covers different types of income and capital and provides relief from double taxation in many situations.

US Expat Tax: Steps to Filing US Taxes as an Aussie Expat

Step 1: Determine Your Tax Residency Status

As an Aussie expat living in the US, you must first determine your tax residency status. The IRS considers you a resident alien if you pass the “substantial presence test.” 

This means you must be physically present in the US for at least 31 days during the current year and 183 days during a three-year period that includes the current year and the two years immediately before that.

Step 2: Obtain a Social Security Number or Individual Taxpayer Identification Number

Next, you need a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) to file your US taxes. If you are eligible for an SSN, you should not apply for an ITIN. 

If you are not eligible for an SSN, you may apply for an ITIN by filling out Form W-7, IRS Application for Individual Taxpayer Identification Number.

Step 3: Understand Your Income and Where It's Taxed

Identify your sources of income and where they are taxed. This includes understanding any tax treaties between the US and Australia that might affect your tax obligations.

Step 4: Collect Your Tax Documents

Gather all necessary documents, including W-2s or 1099 forms from your employer, interest and dividend statements from banks (Forms 1099-INT or 1099-DIV), and, if you’re self-employed, records of all your income and expenses.

Step 5: Choose the Right IRS Tax Form

Choose the appropriate tax form. The form you choose depends on your personal financial situation. Most individuals will file Form 1040, US Individual Income Tax Return, but there are variations of this form depending on specific circumstances.

Step 6: Consider Deductions and Credits

Examine potential tax deductions and credits. Some common deductions include mortgage interest, state and local taxes paid, and charitable donations. 

As for credits, there are several available, including child tax credit, education credit, and foreign tax credit.

Step 7: File Your US Tax Return

Lastly, file your US tax return. This can be done by mail or online. If you are expecting a refund, filing online will generally result in a quicker return. The IRS recommends taxpayers use a tax preparation software that will guide you through the process and do the calculations for you.

US Expat Tax: How to File US Taxes as an Aussie Expat

US Expat Tax: Don't Let Your Taxes Overwhelm You

Navigating US taxes as an Australian expat can be daunting, but it doesn’t have to be. With a solid understanding of the system and possibly professional help, the process can be made much more manageable.

It’s important to stay compliant with your tax obligations to avoid penalties. You should also make the most of the provisions in the tax code to minimise your tax liability. This way, you can focus on enjoying your adventure in the United States without worrying about taxes.

Although we can’t help you file your taxes in the US, our sister company, Odin Tax, can help you lodge your tax in Australia. We have a team of experienced tax advisors who can help you understand your tax obligations and ensure that you file your taxes correctly.

Contact Odin Tax to learn more about lodging your taxes in Australia. 

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Frequently asked questions

If you do not pass the substantial presence test, the IRS will consider you a non-resident alien. Non-resident aliens are typically subject to US income tax only on their US-sourced income.

Yes, as a resident alien, you are required to file a US tax return, even if your income is from foreign sources. However, you may be able to exclude some or all of your foreign-earned income.

Yes, as a resident alien, you are entitled to the same deductions and credits as US citizens. These may reduce the amount of tax you owe.

The US tax year runs from January 1 to December 31. Tax returns are usually due on April 15 of the following year. However, if you live outside the United States on the due date, you are allowed an automatic 2-month extension.

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