Do you pay tax or just report when withdrawing Superannuation?
Published on December 18, 2024
Seth Hertz, a tax professional with 35 years of experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in Australia.
*30-minutes US$437.
Table of Contents
Do I pay tax or just report when withdrawing superannuation?
It depends. If you’ve been reporting your super contributions and any growth on your US tax returns over the years, you likely won’t owe tax when you withdraw the money. You’ll still need to report it to the IRS, but as long as the funds were taxed previously, there won’t be additional taxes to pay.
This is the ideal situation. In Australia, once you reach retirement age, withdrawals from your super are tax-free. If you’ve reported everything correctly on the US side, you get a similar benefit and won’t have to worry about being double-taxed.
What if I haven’t reported everything?
If you haven’t declared your super contributions or growth on your US tax returns, then some of the money you withdraw could be subject to US tax.
The IRS will want to know how much of your withdrawal has already been taxed and how much hasn’t. The part that hasn’t been taxed will be included in your taxable income.
The good news is that if you’re retired and not earning as much, you might fall into a lower tax bracket, meaning you won’t owe as much as you would have during your working years.
Need help with your Superannuation? Our tax experts are here to help.
Could I avoid paying tax altogether?
It’s possible, especially if your withdrawals are small or you have unused foreign tax credits.
If you’ve paid taxes in Australia, you can claim foreign tax credits on your US return, which might cancel out what you owe to the IRS. Foreign tax credits can be carried forward for up to 10 years, so any credits you’ve accumulated over the years can help reduce your US tax liability.
