If you’re an Australian living in the United States, taxes can seem daunting. But knowing whether you’re a resident or nonresident alien—and understanding what that means for your tax situation—is simpler than you think.
Here’s a straightforward guide to clarify your tax obligations in the U.S.
Who Are You In The Eyes Of The IRS?
The U.S. Internal Revenue Service (IRS) categorizes people living in the U.S. into two main groups:
- U.S. Persons (citizens, green card holders, or individuals meeting the substantial presence test)
- Foreign Persons (nonresident aliens)
How Do I Know If I’m A Resident Alien?
If you’re not a U.S. citizen but live or work in the U.S., you’re either a resident alien or a nonresident alien for tax purposes. The distinction matters a lot:
- Resident Alien: You’re taxed similarly to a U.S. citizen, meaning you’re required to report and pay taxes on your global income.
- Nonresident Alien: You’re taxed only on income sourced from the U.S.
You become a resident alien if you pass one of two tests:
- Green Card Test: If you have permanent residency (a “green card”), you’re automatically a resident alien.
- Substantial Presence Test: If you spend at least 31 days of the current year in the U.S., and a total of 183 days during the past three years (calculated by a special formula), you’re a resident alien.
Certain visas, like student (F, J, M, Q) or teaching visas, have special rules—these days may not count towards residency, at least initially.
Resident Alien Taxes: Reporting Worldwide Income
If you’re a resident alien, you must:
- Declare your global income, including income earned outside the U.S.
- Use standard U.S. tax forms (usually Form 1040 or 1040-SR).
The good news is you may qualify for tax relief through:
- Foreign Earned Income Exclusion (Form 2555): Excludes up to a certain amount of foreign income.
- Foreign Tax Credit (Form 1116): Reduces double taxation by crediting taxes paid to foreign governments.
Key Tax Forms For Resident Aliens
Here are common tax forms you’ll likely encounter:
- Form 1040 or 1040-SR: U.S. Individual Income Tax Return
- Form 4868: Application for Automatic Extension (extends filing, but not payment deadlines)
- Form 2555: Foreign Earned Income Exclusion
- Form 1116: Foreign Tax Credit
- Schedule B, C, D, E: Reporting various income types (interest, business income, capital gains, etc.)
- FinCEN Form 114 (FBAR): Reporting foreign bank accounts
- Form 8938 (FATCA): Reporting specified foreign assets
Nonresident Alien Taxes: Paying Only On U.S. – Sourced Income
As a nonresident alien, your tax obligations differ:
- You only pay taxes on U.S.-sourced income.
- Income is classified as either:
- Effectively Connected Income (ECI): Tied to active U.S. trade or business, taxed at graduated rates similar to U.S. residents.
- Non-Effectively Connected Income: Usually taxed at a flat 30% (or lower treaty rate) and includes passive income like dividends and royalties.
Tax Forms For Nonresident Aliens
Nonresident aliens typically file:
- Form 1040-NR: U.S. Nonresident Alien Income Tax Return
- Form 8843: For exempt individuals (students or trainees)
- Form W-7: Application for an Individual Taxpayer Identification Number (ITIN)
When Are My Taxes Due?
- Resident Aliens: Generally due by April 15th each year. Extensions are available until October 15th if requested by April 15th (Form 4868).
- Nonresident Aliens:
- Employees (subject to withholding): Due April 15th.
- Others (not employees or without withholding): Due June 15th.
- Extensions available (also via Form 4868).
Special Situations & Extensions
- Out of the Country? You automatically receive a two-month extension to June 15th if your primary residence or business is outside the U.S. Additional extensions (up to December 15th) are available upon request.
Important: Tax Treaties & Exceptions
Australia and the U.S. have a tax treaty to prevent double taxation. If applicable, you must:
- File Form 8833 to disclose treaty-based positions.
- Understand treaty specifics, which could lower withholding rates and reduce tax burdens.
Penalties And Compliance
Non-filing or late filing can incur penalties and interest charges. Green card holders who do not file tax returns risk losing their U.S. residency status.
It’s critical to stay compliant with all forms and filing deadlines to avoid unnecessary penalties.
Help When You Need It
Navigating the complexities of U.S. taxes as an Australian expat can be challenging – it is highly recommended you seek the services of a qualified CPA who understands expat taxes.