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 city
Sydney listed in IRS Notice (Melbourne, Perth, Canberra are not)
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
The default housing exclusion cap is 14% of the FEIE limit ($18,606 for 2026), after subtracting the 16% base amount. Sydney is 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 qualify for a higher foreign housing exclusion?
Yes for Sydney — it appears on the IRS annual high-cost city table with one of the higher per-city caps globally. Melbourne, Perth, and Canberra are not on the IRS high-cost city table, so expats there use the default 14% net housing exclusion even though Melbourne rents in particular run high. Use the current year's IRS notice on Form 2555 for Sydney's specific limit.
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
$130k Form 2555 exclusion, physical presence test, housing deduction
Self-Employment Tax
15.3% on 92.35% net, 6.2% SS to wage base, deductible half
Quarterly Estimated Tax
Four installments (4/15, 6/15, 9/15, 1/15), safe harbor 90%/100%
Federal Income Tax Calculator
10–37% brackets, $15,750 standard deduction, progressive calculation