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us expat tax guide – australia

What are the filing requirements for Americans in 2024?

If you’re a US citizen or green card holder, it’s important to understand your tax filing obligations, no matter where you live. Here’s what you need to know for the 2024 US tax year

  • Joint Return: Married couples filing together must file a tax return if their combined gross income is $27,700 or more.
  • Head of Household: The threshold for those filing as head of household is $20,800.
  • Single Filer: If you’re filing singly, the threshold is $13,850.
  • Married Filing Separately: Even if your income is as little as over $5, you must file a tax return. This often applies to those married to a non-American and earning minimal income such as bank interest.

It’s important to note that having to file doesn’t always mean you owe taxes to the US government.

Who might have to pay US taxes while living in Australia?

Most US expats in Australia won’t need to pay US taxes, thanks to tax treaties and credits. However, there are a few exceptions:

  • Income from the US: If you have income streams from the US, like rental properties or investments, you might owe US taxes on this income.
  • Low Australian Tax: If you benefit from lower taxes in Australia due to things like salary sacrificing, you might still owe US taxes.

Is double taxation a concern for US citizens in Australia?

Double taxation is rare but can happen under certain conditions, such as if your income is high enough, you might need to pay a 3.8% surtax on investment income, known as Net Investment Income Tax (NIIT). While you can offset US taxes with the taxes you pay in Australia, this surtax might still apply and is not covered by tax treaties.

Is filing as Head of Household preferable to married filing separately?

When deciding whether to file as Head of Household or Married Filing Separately, there are definite advantages to the former, especially if you meet certain criteria:

  • Financial Support: You must have paid more than half of the household expenses for the year.
  • Marital Status: You should be unmarried or considered unmarried as of December 31 of the tax year. This status typically does not apply if your spouse is a US citizen or resident.
  • Dependents: You must have a qualifying person, like a child or dependent relative, as part of your household.

For single parents or those married to non-US citizens, filing as Head of Household could mean higher deductions and more beneficial tax credits

What defines a qualifying dependent for Head of Household filing?

To qualify as a Head of Household, your dependent must meet the following conditions:

  • Residency: You must have lived with the dependent in a home you financially maintained for over half the year.
  • Support for Dependent Parents: If your dependent is a parent, they do not need to live with you as long as you provide more than half of their living expenses.

What expenses count towards Head of Household status?

Eligible household expenses for this filing status include:

  • Rent or mortgage payments
  • Home insurance
  • Property taxes
  • Utilities
  • Home maintenance and repairs

How does the Australian/US tax treaty benefit taxpayers?

The Australian/US Tax Treaty helps prevent double taxation and clarifies tax obligations for US citizens or Green Card holders living in Australia by:

  • Eliminating Double Taxation: It provides mechanisms to allocate taxing rights between the two countries, ensuring that income is taxed efficiently.
  • Saving Clause: The treaty allows the US to tax its citizens as if the treaty did not exist, which means US domestic tax laws still apply.
  • Totalization Agreement: This aspect of the treaty helps avoid dual social security taxation, ensuring that self-employed individuals do not pay into both US Social Security and Australian superannuation systems.

What if you own a business or are self-employed in Australia?

For US expats who own a business or are self-employed in Australia:

  • US Self-Employment Tax: Typically, US self-employment tax cannot be offset by foreign taxes paid. However, the Totalization Agreement provides relief from US social security taxes if you participate in the Australian system.
  • Business Owners: If you’re a business owner, this agreement ensures you’re only contributing to one social security system, either in the US or Australia, depending on where your business is based and where you reside.

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