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Australians working overseas in the USA – What they need to plan for 

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Whether it be a job opportunity or change of scenery, any Australian looking to gain employment overseas should seek strategic financial advice before their departure in order to understand, and potentially avoid, any lasting financial impact that may be difficult to unwind as a result of different rules and regulations impacting their status. 

Although the circumstances vary for every client, the key considerations for working in the USA will often be similar, these are key items to consider before your departure

  • Discussions should be facilitated and by dressing the implications for moving, regardless of the proposed time for being away.  Potentially difficult issues may need to be addressed including where you are going to live, the education needs of children etc.  There will be pro’s and con’s to moving, it is important that all family members are made aware of these. 
  • While planning your time away, you need to set lifestyle and financial goals.  Setting up achievable goals based around what you hope to gain while living in the USA from both a lifestyle and financial perspective. By setting the goals you can work together with your advisor to develop strategies to ensure you are able to maintain your personal goals and keep them on track.   
  • Your financial advisor would no doubt be discussing your case with a specialist tax advisor to better understand you overseas tax implications.  Together they can help devise a plan with you regards your finances prior to departure, while overseas and also upon your return. These strategies would cover things from family home and mortgage, unvested employee shares, shares and other investments as well as superannuation and issues such as insurance and powers of attorney. 
  • Various stages of your financial plan will need to be implement at the appropriate times.  Your advisor can help with this from assisting with administrative duties as well as liaising with the various platform advisors. 
  • As the client, you need to ensure that you remain accountable for sticking with the plan. Regular reviews and tracking will help with this.
  • Keeping communications open with your advisor can also protect you against costly mistakes.  Always consult your advisor very entering into any new agreements or investments. 

Which country are you a Tax resident of? 

You will need to establish this immediately.  Which country you nominate to be a tax resident of will impact the amount of taxes you pay as well as decisions including your investments in order to be the most tax effective. 

In previous articles we have touched on the implications and consequences, should you consider yourself a non resident, for any investments you still hold in Australia.  Your superannuation and any property may become subject to some hefty tax penalties from both countries. This is something you need to discuss with a professional who is experienced in these laws. 

If you decide to declare yourself a US tax resident, then you need to ensure you qualify through the Australian Tax Office, whom has different criteria, to determine whether they consider you to be a tax resident in the US.  Among the many criteria, the ATO will need to establish that your home in the US is permanent and has been your permanent home for at least two years. 

The US also determines whether they consider you to be a resident for tax purposes.  People who hold a green card (permanent residency visa), as well as any person who has resided in the US for more than 183 consecutive days, fall under the title of ‘resident alien’ which will usually mean you are subject to the same tax laws as a citizen.   All resident aliens are then also liable to pay taxes on any ‘global income’ regardless of the source, nor the country of the income

CGT discount for foreign resident individuals 

The 50% discount on the sale of taxable Australian real property is not available for foreign residents on any property purchased after May 8th 2012. 

Planning Prior to Departure  

When moving to the US there are many things you need to consider, Tax will need to be a priority to ensure you don’t find yourself in an expensive hole later on down the line. 

It is not possible for this article to cover all aspects of taxation and the rules that apply in foreign jurisdiction, however as a summary; 

Income Taxes and Tax returns in the USA 

As mentioned, US tax laws may appear complicated. Here are a few aspects you need to be aware of. 

Federal Income Tax 

Federal income tax in the primary form of taxation on your income. As a resident alien your global income will be taxed anywhere between 10-39.6% minus any allowable deductions. 

State Income Tax

Most States within the US impose their own income tax.  More often than not, State income tax in less than 10% and are generally deductible from Federal income tax purposes. 

Federal social security and Medicare (FICA) 

For 2018 tax year: The 7.65% tax rate is the combined rate for Social Security and Medicare. The Social Security portion (OASDI) is 6.20% on earnings up to $128,400. The Medicare portion (HI) is 1.45% on all earnings. 

Employee Share Schemes 

When a person ceases to be a tax resident of Australia there us no change to the taxing point. Tax will continue to be deferred until the ‘cessation time’ 

The best options for clients who are about ti become a non- resident for tax purposes will depend on individual circumstances including the size of capital gain, cash flow position and any carry forward losses.