Tax for expats in America in 2021

Tax is something that you need to take very seriously, and you have obligations that extend beyond what is in the US and what is in Australia (basically, you need to combine them).

Seeking professional advice, therefore, is potentially your best way forward. I have listed some accountants who have been passed through to me below, and if you have more, please do let me know!

One thing to note early is that Australian and US tax years operate on different cycles. Australia has a June 30 year-end, while the US has a December 31 year-end.

Payroll Tax explained in America

Federal income tax, Federal Social Security and Medicare tax, State income tax, and City income tax are withheld every pay-check.

Your employer approximates how much tax you will owe at the “end of the year” (the 15th of April or the next business day following it if the 15th is a weekend or holiday). They do this by pro-rating (working backward for how much time you’ve been working) your salary on a yearly basis to determine which income tax bracket you will fall in and remits this amount to the various levels of government who receive your payroll tax (e.g. City, State, and Federal).

In January and early February, you start receiving forms from your employer, a health insurance company, bank, share broker, and any other entity that gave you money over the past year. Keep these handy. You’ll need them when you File Your Tax Return.

Pro note: In some situations, such as receiving restricted stock units, your employer may apply a flat withholding rate instead of approximating which may lead to a tax bill at the end of the year due to under-withholding.

How do you file your tax in America as an expat?

As a newcomer to the U.S. (for at least the first year and first filing), you should always, for simplicity, safety and peace of mind, use a proper accounting or tax firm. This applies too if you are in a situation that is more complicated than simply working one job (e.g. with assets or international considerations).

After a year, most Americans use Turbo Tax, an online system like Etax in Australia (though privately run, so there’s possibly a fee!). It’s pretty easy and cost-effective and it also helps you understand what’s driving your US tax. A “tax preparer” can help you get everything in a line if you need some help.

It is worth pointing out that deductions are quite complicated in the US – but most taxpayers who don’t have mortgages use a standardized deduction, which means you do not get a tax deduction on your accountant fees. So don’t mentally deduct 40% when considering the cost!

I recently ran a tax webinar all about taxes for Australians and expats in the U.S.! You should definitely watch it because it answers all the top questions and people said things like:

“The webinars are very useful in providing an overview on expat topics” and “Great webinar, very helpful and informative. Time well used!”

Click here to watch online now!

Recommended accountants for expat tax

I personally use Jason from UpTrend Advisory, he’s been super helpful with information for not just me but also lots of expats who are here and need some help (once-off, or ongoing)!

I have also heard great things about Glenn Hines from Australia America Tax Services.

Non-resident Filing

It is also worth noting that if you are filing as a non-resident, you are not entitled to a standard deduction and will need to itemize.

Be sure to understand your “residency for tax purposes” when it comes to tax as it does change things. I’ve written all about it, here.

Please note that Turbo Tax does not support non-resident filings if you are a non-resident for tax purposes, however, Sprintax does.

Typical expenses that can be itemized with limitations are:

  • Medical and Dental
  • State and Local taxes (i.e NY taxes)
  • Real estate tax
  • Mortgage interest
  • Gifts
  • Accounting fees

Whether you are entitled to a standard deduction or itemization, if you have children, you could be entitled to additional child tax credits.

Sales Tax at the checkout

Payroll taxes are what comes out of your pay check each week and what you clear up at tax time, but another tax you should be aware of when living in the U.S. is sales tax.

This is the “government markup”, shall we say (like GST in Australia). The price on the shelf is not your out-the-door price. If an item costs $10 and you live in an area with a 9.5% sales tax (like New York City), you will owe the cashier $10.95.

Not every area has a sales tax. Notably, Oregon does not impose one anywhere in its state and the sales tax rate varies by area. Suffice to say, prepare to pay up to 10% more than what the shelf price says in most areas of the country.

Extra bits for Australians

It’s important to think about HECS, HELP, investments, income, and partners in Australia when doing your tax over here!

The Aussie Expat Investor is a great one for all things helpful when it comes to tax and accounting, so be sure to keep an eye on his website. You will also want to know how Aussie expats can benefit from the double taxation agreement!

Thank you so much to Reddit’s /r/IWantOut user /u/oowm for so much of this fantastic advice!

Thanks also to Ross E. for fleshing out the details.