Australian taxes for Americans: the ATO, the IRS and how the two returns fit

Here's the deal: once you live in Sydney, the Australian Taxation Office (ATO) taxes you like a local, and because you're American, the IRS still wants a return too. The good news is that Australian rates are high enough that most salaried Americans in Sydney owe little or nothing extra to Uncle Sam.

The short version

• Australian residency is decided by four tests, and most Americans who move to Sydney to live and work become residents for tax purposes [1].
• Temporary residents get a break. If you're on a temporary visa and your spouse isn't an Australian resident, most of your foreign income isn't taxed in Australia [1].
• Rates for 2025–26 run from 0% on the first AUD 18,200 to 45% above AUD 190,000, plus a 2% Medicare levy [2].
• The Australian tax year runs July 1 to June 30. The US tax year is the calendar year, so the two never line up.
• The US–Australia tax treaty (1982, updated by a 2001 protocol) and the foreign tax credit keep you from paying twice [5]. The totalization agreement helps with Social Security and spares self-employed Americans in Australia from US self-employment tax [6].

USD conversions use the Federal Reserve H.10 rate of October 30, 2026 (AUD 1 = USD 0.7038), rounded.

Are you an Australian tax resident?

The ATO uses four statutory tests: the resides test, the domicile test, the 183-day test and the Commonwealth superannuation test [1]. Meet any one and you're a resident. Unlike the hard day-count rules in some countries, the main test, "resides," looks at your whole life: why you're here, how long you plan to stay, where your home, job and family are [1].

In practice, if you've moved to Sydney on a work, partner or student visa, rented an apartment and started a job, you're almost certainly a resident from the day you arrive. The ATO has an online tool to check your status [1].

The temporary resident break

This is the rule Americans most often miss, and it's a good one. You're a temporary resident for Australian tax if you hold a temporary visa, aren't an Australian permanent resident or citizen, and your spouse isn't an Australian resident under social security law. If that's you:

• Most foreign income isn't taxed in Australia [1]. Interest from your US savings, dividends from your brokerage account and rent from your house back home stay off your Australian return.
• Pay for work you do in Australia is taxed, as is some pay for work done overseas while you're a temporary resident [1].
• Capital gains on most non-Australian assets are generally outside the Australian net too.

The catch: marry or partner with an Australian, or get permanent residence, and the break ends. From then on, Australia taxes your worldwide income, US investments included. If your partner is Australian, our sister site ExpatCooee explains how Australian tax residency works after a move, which helps if they've been living in the States with you.

Australian tax rates for residents

Here are the ATO's resident rates [2]:

For 2026–27 (from July 1, 2026), the 16% rate drops to 15%, and the tax on the higher bands falls slightly, to AUD 4,020 at AUD 45,000, for example [2]. These rates assume you get the full tax-free threshold, and they don't include the Medicare levy [2].

A few differences from back home:

• No state income tax. New South Wales doesn't tax wages, so there's no Sydney equivalent of California's state return.
• No joint returns. Each person files individually, though a partner's income affects some offsets and the Medicare levy surcharge.
• PAYG withholding takes tax from each paycheck, much like US withholding. Give your employer your tax file number (TFN) or you'll be taxed at the top rate. See tax file number and the Medicare levy.
• Work and Holiday visa holders are taxed at a special 15% rate on their first AUD 45,000, with no tax-free threshold.

The Medicare levy

Residents pay a Medicare levy of 2% of taxable income on top of income tax [2]. Here's the twist for Americans: most temporary visa holders can't use Medicare, because the US has no reciprocal health care agreement with Australia. If you're not entitled to Medicare benefits, you can claim an exemption from the levy [3]. You'll need a Medicare Entitlement Statement from Services Australia to back it up.

Once you're a permanent resident and enrolled in Medicare, you pay the levy. Higher earners without private hospital cover can also owe the Medicare levy surcharge.

Filing both returns: the calendar

Two tax years, two returns, one year of income split across them. Here's how it lays out:

The steps that keep it straight:

1. Lodge the Australian return first for the year ending June 30, so you know your Australian tax.
2. Split the Australian tax by calendar year for your US return. Your 2026 US return draws on part of the 2025–26 and part of the 2026–27 Australian years.
3. Claim the foreign tax credit on Form 1116 for Australian tax on your wages. Because Australian rates at most salary levels are close to or above US rates, the credit usually wipes out the US tax on that income.
4. Or use the foreign earned income exclusion on Form 2555: up to USD 130,000 for 2025 and USD 132,900 for 2026 [4]. With Australia's rates, the credit often works better, especially if you have kids and want the refundable child tax credit. A US expat tax preparer can check which suits you.
5. File the FBAR if your foreign accounts, super included in many preparers' view, top USD 10,000 combined at any point in the year [7].
6. Check Form 8938 too. People living abroad face higher thresholds than residents stateside.

The treaty and the totalization agreement

The US–Australia tax treaty

The income tax treaty dates from 1982, with a protocol added in 2001 [5]. It decides which country gets first say over dividends, interest, royalties, pensions and business profits, and it reduces withholding on some cross-border investment income.

What it doesn't do: let you skip your US return. Like nearly every US treaty, it has a saving clause that lets the US keep taxing its citizens as if the treaty didn't exist, with some exceptions. The treaty mostly matters for how the foreign tax credit works and for withholding rates. See tax treaties and totalization agreements.

The totalization agreement

The US and Australia have a Social Security totalization agreement, and it works a little differently from most, because Australia has no worker-paid social security tax. Its retirement system runs on means-tested pensions and compulsory superannuation paid by employers [6]. Key points from the SSA [6]:

• Self-employed Americans living in Australia don't pay US Social Security tax on their self-employment income. Get an exemption letter from the SSA's Office of Earnings and International Operations and attach a copy to your US return each year.
• Benefits: if you're short of the 40 US credits for a retirement benefit, Australian residence can help you qualify for a partial US benefit, as long as you have at least six US credits.
• Superannuation isn't covered by the benefit side of the agreement [6].

Super, investments and the traps

Superannuation is Australia's version of a 401(k), funded by your employer at the super guarantee rate on top of your salary. The IRS doesn't treat super as tax-favored the way Australia does, and whether employer contributions and fund earnings are taxable to you in the US is genuinely unsettled. Get advice early. Our guide to superannuation and US tax goes into the details.

Two other traps:

• Australian managed funds and ETFs are usually PFICs in US eyes, which means punishing US tax and extra forms. Many Americans keep investing through a US brokerage instead. See PFICs: why foreign funds hurt Americans.
• Franking credits on Australian dividends reduce your Australian tax, but they don't count as foreign tax paid for the US credit in the same way. Ask a preparer before you build a dividend portfolio.

A US expat tax preparer, ideally working with an Australian registered tax agent, can check your situation. Swapping notes with others in our community group for Americans in Australia helps too, especially around the June 30 year-end.

Sources

1. Australian Taxation Office: Australian resident for tax purposes
2. Australian Taxation Office: Tax rates for Australian residents
3. Australian Taxation Office: Medicare levy
4. IRS: Figuring the foreign earned income exclusion
5. IRS: Australia tax treaty documents
6. SSA: Totalization agreement with Australia
7. FinCEN: Report of Foreign Bank and Financial Accounts (FBAR)
8. Federal Reserve: H.10 foreign exchange rates

Keep reading

• Superannuation and US tax
• Tax file number and the Medicare levy
• Foreign earned income exclusion vs foreign tax credit
• FBAR: reporting your foreign bank accounts