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I am a dual Australian and United States citizen, born in Australia having only the United States twice in my life. It has recently become apparent to me that I have to file a United States Tax return. My situation is novel in that I only started working in February last year (2014). The American and Australian Tax years are different and as such it has been a pain to find out what I justly owe in American Tax:

From the period of 1st Jan 2014 - 30th Jun 2014 (Start of the American Tax year 2014 to the end of the Australian Tax year 2014), I have earned above the American Tax threshold, but below the Australian Tax threshold. This means that all my Australian tax was paid was returned upon filing my tax return. I expect my taxes for the following Australian Tax year (2015) to not be refunded as I am now earning above the minimum tax threshold for Australia.

As I was refunded for my Australian Tax in the year 2014, does this mean that I will have to pay American tax on this period from 1st Jan 2014 - 30th Jun 2014?

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You'll have to talk to a US-licensed EA/CPA working with expats in Australia for more authoritative answer. My understanding is that you calculate your Australian taxes and income per calendar year (prorate if no other way is possible), and that is what you report on your US tax forms.

So for the foreign earned income exclusion you use your income from January to December 2014, and for foreign tax credit you use taxes paid in the same period (obviously what you have been refunded doesn't count into taxes paid).

If your income is so low that it is below Australian tax levels, you're probably well within the foreign earned income exclusion (unless the income is not earned, i.e.: not salary), so you shouldn't care about the tax credit calculation at all.

That said, even if you don't owe any US taxes due to the exclusion, you're still required to file the forms if your income is above the filing requirement levels. Note that you may be required to file tax return even if your income is below these levels. One reason would be, for example, if you have foreign accounts with total balances of $10K (USD) aggregate at any day of the year or more. In this case you'll need to file FBAR, and file your tax return with Schedule B, on which a checkbox must be checked.

Read more in my answer here.

  • It seems conflicting that there is a foreign earned income exclusion of $90k but the advertised tax threshold is $9k. Just confirming here, but as I earned less than $90k USD in the year 2014, this allows me to claim my income for the period as US tax exempt? – user4916 Jan 6 '15 at 2:32
  • Anyway, this is by far the best explanation I have been able to find online so I will accept this as the answer. – user4916 Jan 6 '15 at 3:03
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    @JustAnotherDotNetDev These are unrelated thresholds. To claim foreign earned income exclusion you need to file the tax return and attach form 2555 to it. Not all the foreign income qualifies for the exclusion - read the instructions carefully. Better, talk to a US-licensed EA/CPA working with Australians. – littleadv Jan 6 '15 at 3:21
  • Deleted my comment, as I misunderstood your post. – Kent Jan 6 '15 at 6:51

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