US Expat Tax in Australia (2026)
Americans working in Australia still owe US tax on worldwide income. This guide covers the Foreign Earned Income Exclusion ($132,900 for 2026), the Foreign Tax Credit (Form 1116), housing exclusion, and Self-Employment tax — with a $130,000 worked example.
FEIE vs Foreign Tax Credit in Australia
Australia is a high-tax country with a strong treaty — the Foreign Tax Credit beats the FEIE on any salary above roughly AUD 60,000. Watch the Superannuation wrinkle: the IRS treats Super as a foreign grantor trust by default, which can trigger annual taxation of gains; many US expats use the treaty's Article 18 to defer. FBAR + Form 8938 apply to Super balances.
Key facts: US & Australia
Tax treaty
Yes — US/Australia treaty in force since 1982 (2001 protocol)
Totalization
Yes — since 2002; avoid double SS/Super guarantee via Certificate
Local top rate
45% + 2% Medicare Levy (combined 47%)
High-cost housing cities
Sydney, Melbourne, Perth, Canberra listed in IRS Notice
Worked example — $130,000 salary (2026)
Single filer, full qualifying year (330+ day physical-presence test), standard deduction, no self-employment income. Numbers are federal only — add local Australia tax separately.
Gross salary
$130,000
FEIE exclusion
$130,000
2026 limit $132,900
US federal tax with FEIE
$0
After stacking rule
FEIE tax saving
$19,934
vs no exclusion
Run your own numbers on the Foreign Earned Income Exclusion calculator — add housing, adjust qualifying days, toggle self-employment.
Australia income tax (for context)
Australian income tax (2024-25 after Stage 3 cuts): AUD 0–18,200 tax-free, 16% to 45,000, 30% to 135,000, 37% to 190,000, 45% above. A 2% Medicare Levy applies to most residents, plus a 1–1.5% Medicare Levy Surcharge for high earners without private health. No separate state income tax; state-level payroll tax is employer-only.
Foreign Housing Exclusion — Sydney / Melbourne
The default housing exclusion cap is 14% of the FEIE limit ($18,606 for 2026), after subtracting the 16% base amount. Sydney and Melbourne are listed in the IRS annual high-cost city notice, which allows a higher per-city cap. Use the current year's notice (IRS Notice 2025-series) for the specific per-city dollar limit — these numbers change annually.
Frequently asked questions
Should I use FEIE or FTC in Australia?
Foreign Tax Credit almost always. Australian tax on a salary above AUD 45,000 exceeds US tax on the same income (after standard deduction), so the FTC zeros out US federal liability. The FEIE only helps low-income or part-year expats. Long-term Australian residents typically revoke FEIE (5-year lockout) and use pure FTC.
How is Superannuation taxed by the US?
Complex and contested. The IRS has historically treated Super as a foreign grantor trust, meaning growth inside Super is US-taxable annually and may trigger Forms 3520 / 3520-A. Many practitioners argue Super is treaty-equivalent to a qualified retirement plan under Article 18 of the US-Australia treaty, which would defer US tax until distribution. Disclose the treaty position on Form 8833. Employer contributions may still be US-taxable as deferred compensation under §402(b).
Do I pay US Social Security on Australian self-employment income?
Usually no. The US-Australia Totalization Agreement (in force since 2002) means if you are covered by the Australian Superannuation Guarantee as an employee or pay Australian income tax as a self-employed person, you are generally exempt from US Social Security and Medicare. Get a Certificate of Coverage from the ATO.
Does Sydney or Melbourne qualify for a higher foreign housing exclusion?
Yes. Sydney, Melbourne, Perth, and Canberra all appear on the IRS annual high-cost city table with enhanced housing exclusion limits. Sydney in particular has one of the higher Australian per-city caps. Use the current year's IRS notice on Form 2555.
Are Australian franked dividends and CGT discount recognized by the US?
No. The franking credit system is uniquely Australian — US does not recognize the imputation credit, so a $100 franked dividend grosses up for AU tax but is just $100 on your US return (or $70 after 30% AU withholding). The Australian 50% CGT discount on long-held assets does not apply to US reporting; compute US capital gains on the full difference. The treaty does cap Australian withholding on dividends paid to US residents at 15%.
Sources
Related Calculators
Foreign Earned Income Exclusion
Form 2555 FEIE limit, housing exclusion, and qualifying tests.
Self-Employment Tax
Calculate SE tax on 1099 and freelance income.
Quarterly Estimated Tax
Calculate quarterly payments for self-employed income.
Federal Income Tax
Calculate your federal income tax by filing status.