Moving to the US? The Tax Issues Every Australian Expat Should Understand First

Moving to the United States is a thrill. New job, new city, the whole American adventure. Somewhere on the to-do list, well below “find a school” and “work out which side of the road the light switches are on,” sits a topic almost everyone underestimates: tax. And the US tax system is not the Australian one with a different accent. It’s a genuinely different beast, and for Australians it has a few traps that can cost real money if you stumble into them unprepared.

The US is also one of the more demanding tax jurisdictions an Australian can move to, so this is one move where getting advice before you go, not after, is worth its weight in gold. Here are the issues to get your head around first, on both sides of the Pacific.

1. Work out your US tax residency status

Everything starts here, because your US residency status determines what the US can tax. If you’re treated as a US tax resident (a “resident alien” in the IRS’s charming terminology), you’re generally taxed on your worldwide income and worldwide capital gains, exactly as a US citizen would be. If you’re a non-resident alien, the US generally only reaches your US-connected income. Big difference.

There are two main ways to become a resident alien:

• The green card test: if you become a lawful permanent resident, you can be treated as a US tax resident. The starting date isn’t always as simple as “the day the card exists,” though. Broadly, if you receive the green card while outside the US, your US tax residency starts when you first enter the US holding that status. And once you have it, it generally continues until it’s formally abandoned, revoked or terminated, so the immigration story and the tax story aren’t always the same conversation.
• The substantial presence test: a day-counting test. Broadly, you meet it if you’re present in the US for at least 31 days in the current year, and at least 183 days across a three-year window, counting all your days this year, a third of your days last year, and a sixth of your days the year before. It’s a weighted formula, not a simple tally, which catches a lot of people who thought they were comfortably under the line.

There are exceptions and special rules too. Certain visa categories can exclude days from the substantial presence count, and there are rules for closer-connection claims, medical-condition days and days spent in transit. So don’t assume every day counts, and don’t assume none of them do. The answer depends on your visa, your history, and the paperwork you actually file.

Why this matters so much for an Australian: the timing of when you become a US resident can determine whether your Australian assets and superannuation get dragged into the US tax net, including gains that built up entirely while you were still living in Australia. Get the timing and planning right before you go, and you can avoid handing the IRS a slice of value you created long before you ever set foot in the country.

2. Do not forget the Australian exit tax on the way out

Before the IRS even gets a turn, Australia may have a parting gift. When you cease to be an Australian tax resident, CGT event I1 can treat you as having disposed of many of your non-taxable-Australian-property CGT assets at their market value on the day you leave.

That can sweep in shares, ETFs, crypto, foreign assets and founder equity. You may be able to choose to disregard the deemed gain or loss, but that choice keeps the relevant assets inside the Australian CGT net until you actually sell them or become an Australian resident again. In plain English: Australia may let you park the bill, but it keeps your forwarding address.

This matters even more when you’re heading to the US, because the US generally taxes resident aliens on worldwide income and gains once US residency begins. Get the sequencing wrong and you can end up with Australia taxing your departure, the US taxing the later sale, or both countries eyeing the same economic gain while you sit in the middle holding a spreadsheet and a headache. The order of operations here is worth real money.

3. Your Australian super is the big one, and not in a good way

This is the issue that blindsides Australians most often, so brace yourself. Australian super is designed to be tax-friendly in Australia. The US does not automatically treat it like a US 401(k), IRA or other neatly recognised qualified retirement plan. Same retirement money, very different accent, and much worse paperwork.

The problem is structural. Australian super funds are generally trust-based arrangements under Australian law. For US purposes, they’re commonly analysed under foreign trust, foreign grantor trust or non-exempt employee trust principles, depending on the fund, the contribution history, how much control the member has, and the filing position taken. Self-managed super funds (SMSFs) can be especially spicy, because member control is usually sitting right there in the front row.

The practical sting is this: as a US tax resident, you may face US tax on contributions, earnings or growth in ways that simply don’t line up with the Australian treatment. In some cases, amounts can be taxable in the US even though Australia treats the money as preserved retirement savings you can’t touch until you retire. That’s not a timing mismatch you want to discover two tax returns late.

Then comes the reporting, and it’s a thicket. FBAR (foreign bank and financial account reporting) can apply once your aggregate foreign accounts cross the threshold. Form 8938 may apply to specified foreign financial assets, including foreign pension interests. Forms 3520 and 3520-A may enter the conversation if the fund is treated as a foreign trust, although Revenue Procedure 2020-17 can remove those particular trust forms for some qualifying tax-favoured foreign retirement trusts. Whether a given super fund qualifies is genuinely debated and turns on the fund’s features and your contributions, and even when it does, that relief doesn’t settle the income-tax treatment and doesn’t remove FBAR or Form 8938. Helpful? In places. A magic eraser? No.

One more trap: the PFIC (“passive foreign investment company”) rules are brutal for many pooled Australian investments, and can be relevant to investments connected with super depending on structure and classification. Don’t assume the holdings inside a fund are harmless just because they look dull on an Australian statement. The IRS has a special talent for making boring expensive.

The hard truth most people don’t want to hear: the Australia-US tax treaty does not give Australian super a clean, comprehensive US pension wrapper. It helps in places. It does not solve this one neatly. That’s precisely why super deserves serious, specific US advice before you move. We go deeper in our piece on how Australian superannuation is treated in your US tax return.

Your Australian ETFs and managed funds may be a US paperwork factory

This one deserves its own flag, because it’s among the most common and avoidable mistakes Australians make. Before you become a US tax resident, review your Australian managed funds and ETFs. Many perfectly ordinary Australian funds are PFICs for US tax purposes, which can mean punitive tax treatment, genuinely ugly calculations, and annual Form 8621 reporting.

The classic mistake is to arrive in the US with a tidy little Australian ETF portfolio and then discover it has quietly become a compliance swamp. If restructuring makes sense, the time to do it is generally before you become a US tax resident, not after. After is where the invoice lives. (This is investment-structuring territory with real tax consequences, so it’s one to work through with an adviser rather than a hunch.)

Your Australian home can be a quiet tax grenade

If you keep your Australian home and rent it out while living in the US, don’t assume the old six-year rule automatically saves you. The six-year absence rule can still help if you sell while you’re an Australian tax resident and the usual conditions are met. But if you sell while you’re a foreign resident, the main residence exemption is generally denied unless a narrow life-events test applies. For ordinary post-CGT property, that can mean Australian CGT across the whole ownership period, even though the place was genuinely your home for years.

The contract date matters, and your tax residency on that date matters. Your memories of the backyard barbecue, sadly, don’t do the tax return. We cover this in detail in our guide to the main residence exemption and the six-year rule for expats.

4. Get to grips with the Australia-US tax treaty

When you straddle two countries, both may want to tax the same income. The Australia-US double tax agreement exists to reduce double taxation and allocate taxing rights. Note the careful wording: it doesn’t mean you only pay tax in one country, and it doesn’t mean your total bill is magically the lower of the two. The treaty is a referee, not a discount voucher.

If you end up a tax resident of both countries under each country’s domestic rules, Article 4 contains tie-breaker rules that assign you to one country for treaty purposes, looking at things like your permanent home, habitual abode and where your personal and economic ties sit. Helpful, certainly. But it resolves your status for the treaty; it doesn’t automatically switch off your domestic filing, reporting and disclosure obligations in one or both countries.

For each category of income, the treaty then works through which country can tax it and whether the other gives relief. Where both can tax the same income, foreign tax credits are usually the mechanism that prevents the double hit. But the credit isn’t automatic or unlimited: the foreign tax has to be creditable, it has to be paid or accrued by the right taxpayer, and the credit is generally capped at the amount of the claiming country’s own tax on that foreign-source income. It reduces double tax; it doesn’t hand you a blank cheque.

And one crucial warning for dual citizens and green card holders: the treaty contains a US “saving clause.” In broad terms, the US reserves the right to tax its citizens and residents largely as if the treaty didn’t exist, subject to specific exceptions. That’s a big part of why the treaty is useful but not, on its own, a complete shield. Treaties are helpful. They are not fairy dust.

5. Brace for more than one layer of income tax

In Australia, personal income tax is a federal affair and that’s largely the end of it. The US stacks several layers, and the total can surprise you:

• Federal income tax, on a progressive scale. For 2026 the seven brackets run from 10% up to a top rate of 37% (the lower-rate structure introduced in 2017 was made permanent by 2025 legislation, so the old talk of a looming return to 39.6% is off the table for now). As a resident, you’re taxed on your worldwide income, less deductions.
• State (and sometimes local) income tax, which is entirely separate and varies wildly. Some states (Texas, Florida and a handful of others) levy no personal income tax at all; others certainly do, with California topping out around 13.3%. Where you choose to live within the US genuinely affects your tax bill, which isn’t something Australians are used to weighing.
• Social Security and Medicare taxes (together, FICA), which can apply to US employment income. Social Security is 6.2% on wages up to an annual cap, which for 2026 is $184,500; Medicare is 1.45% with no cap, plus an Additional Medicare Tax of 0.9% on wages above $200,000 (single) or $250,000 (married filing jointly), thresholds that, irritatingly, aren’t indexed for inflation. There’s also a US-Australia totalization agreement, which can affect whether US FICA or the Australian Superannuation Guarantee applies for certain workers, so payroll tax isn’t always the simple story it looks like.
• And one the original version of this advice often missed: the Net Investment Income Tax, an extra 3.8% on investment income for higher earners (broadly, above $200,000 single / $250,000 joint), which can land squarely on the Australian investment income and gains you bring with you.

Stack those together and the cheerful “but the US has lower taxes” can look rather different once state tax, FICA and the investment surcharges are in the mix, especially for someone arriving with Australian investments and super.

A note for dual citizens

If you’re a dual US/Australian citizen, the US is unusual in taxing its citizens on worldwide income no matter where they live, which (combined with the saving clause above) is why some long-term US citizens in Australia eventually weigh up renouncing. That’s a significant and complicated decision with its own tax consequences, well beyond this article, but if it’s on your mind, it’s firmly a “get specialist advice” situation.

The bottom line

Moving to the US is a wonderful thing to do. It’s also a tax jurisdiction that rewards preparation and punishes winging it, particularly for Australians carrying super, local investments, a former home, founder equity or managed funds.

The issues to map before you fly are easy to name and harder to execute: when you cease Australian tax residency (and whether CGT event I1 bites), what happens to your Australian home and your ETFs, when you become a US tax resident, how your super will be treated, how the treaty applies, and which US federal, state and payroll taxes will hit you. Done early, this planning can save a genuinely large sum. Done late, it becomes damage control with better stationery.

Planning a move to the US?

This is exactly the kind of cross-border puzzle we help Australians solve. We can work through your residency timing on both sides, the Australian exit-tax position, the treatment of your superannuation, investments and former home, how the Australia-US treaty applies to you, and how to sequence the move so you’re not paying more than you need to on either side of the Pacific. Where US-side filing specialists are needed, we’ll make sure that’s coordinated too. Our fee is always an upfront quote.

Book an appointment with our specialist team today, ideally well before you board the plane. Worth the half hour, trust me.

General information only. This article doesn’t consider your personal circumstances and isn’t tax or financial advice. It describes aspects of the US tax system for general context; US federal, state and local taxes are administered by the relevant US authorities under their own laws, which change frequently and are in places unsettled, and figures and thresholds change from year to year, so confirm the current position with a qualified US tax adviser. Your outcome depends on your specific circumstances, your residency and timing, and how the Australia-US tax treaty applies to you. Speak to our specialist expatriate tax team today, or to another registered tax agent, before acting.