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Connect on LinkedInAll Americans, including expats, are required to file US taxes, reporting their worldwide income. Expats may also have to report their foreign business interests, assets, and bank and investment accounts, including most foreign pension accounts.
To avoid double taxation, rather than relying on the international tax treaties the US has signed, expats must claim one or more exemptions that the IRS has made available for this purpose when they file their US tax return.
The most commonly utilized exemptions are the Foreign Tax Credit, which allows expats to claim US tax credits to the value of foreign taxes that they’ve paid, and Foreign Earned Income Exclusion, which allows expats to simply exclude the first US$126,500 (2024) of their earned income from US taxation. To claim the Foreign Earned Income Exclusion, expats must first prove that they live abroad in one of two IRS prescribed ways though.
Americans living in Australia won’t have to pay both Australian and US social security taxes though, thanks to a treaty called a Totalization Agreement that the two countries have signed.
What is a superannuation?
Superannuation refers to Australian Superannuation Funds, often referred to as ASFs, or just Supers.
Everyone over the age of 18 who is working in Australia, including Americans, is required to contribute to a superannuation fund to save for retirement. Employers also contribute to the fund, and sometimes the government too.
Superannuation fund employee contributions aren’t taxable in Australia, and neither are distributions made in retirement.
How should expats report superannuation on their US tax return?
“Fearful that an aging population would strain Australia’s Age Pension system, the government and unions got together to create The Super.” – Forbes
The IRS hasn’t published clear guidance regarding US tax treatment of Australian Superannuation Funds, however it is generally acknowledged that that both contributions and distributions are considered taxable by the US (and including employer contributions). These should all be reported on Form 1040.
Distribution income from Super can’t be excluded using the Foreign Earned Income Exclusion.
While many Australian Superannuation Funds (ASFs) are classified as Foreign Grantor Trusts for U.S. tax reporting—requiring the filing of Form 3520 and Form 3520-A—their classification depends on key factors such as fund structure, taxpayer control, and IRS guidance. Here’s what you need to know:
1. Foreign Grantor Trusts
ASFs where the employee has significant control over investment decisions or where voluntary contributions exceed employer contributions are more likely to be treated as Foreign Grantor Trusts.
In these cases:
- Forms 3520 and 3520-A are required annually.
- Earnings within the fund may be taxable even before distributions.
2. Employee Benefit Trusts (IRC 402(b))
ASFs that operate as employer-sponsored retirement plans, where the employer makes the majority of contributions and the employee has limited control over fund investments, may be treated as Employee Benefit Trusts under IRC Section 402(b).
Ownership of Employee Benefits Trusts contribute towards Form 8938 reporting, so if an American has a total of over $200,000 in foreign banks and investments during a tax year including the savings in their ASF, they may have to report them on Form 8938.
Tax implications:
- Employer and employee contributions may be taxed as income.
- No Form 3520 or 3520-A is required if classified as a 402(b) trust.
- Earnings within the fund generally remain tax-deferred until distributions are made.
3. Revenue Procedure 2020-17 — Exemption for Certain ASFs
The IRS issued Revenue Procedure 2020-17 to exempt certain foreign retirement trusts from the burdensome reporting requirements of Forms 3520 and 3520-A.
Expats should consult an expat tax specialist though to ensure that their particular ASF doesn’t qualify for FBAR reporting, as the guidance regarding reporting foreign pension plans is complex and doesn’t specifically cover Supers.
Expats who need to catch up with their US tax filing
How American expats report Australian Superannuation Funds on their US tax return isn’t straightforward, and we recommend that expats with any questions get in touch with an expat tax specialist for some advice.
Expats who need to catch up with their US tax filing can do so without facing penalties under an IRS amnesty program called the Streamlined Procedure, so long as they do so before the IRS contacts them.
