No. Franking credits themselves are not considered income for US tax purposes.

That answer often lands with a pause. Maybe even a raised eyebrow. After all, Australian dividend statements don’t make this easy. They show multiple numbers. One looks like cash. One looks like tax. Another looks like some kind of inflated “total.”

If you’re a US citizen living in Australia and trying to be careful with your reporting, it’s reasonable to wonder whether the IRS expects you to include all of it. They don’t. But the reason why matters.

Why this question keeps coming up

Picture an Australian dividend statement landing in your inbox. It shows a cash dividend of, say, AUD 700. Right below it sits a franking credit of AUD 300. Then there’s a “grossed-up” amount of AUD 1,000.

If you grew up in the US tax system, that layout is unsettling. It feels like the statement is telling you, quietly but insistently, that the full AUD 1,000 is relevant. Maybe even taxable.

In Australia, that presentation makes sense. Franking credits are part of how income is measured and taxed locally. In the US, however, the framing alone doesn’t determine what counts as income. The rules run on a different logic.

What the US actually treats as income from dividends

For US tax purposes, income is generally about what you receive, or at least what you have control over. Cash counts. Property counts. Something you could access, spend, or redirect usually counts.

Notional amounts are another story.

Dividends from foreign companies are still dividends. US citizens report worldwide income, so Australian dividends don’t get a free pass. But the IRS focuses on the cash dividend you actually receive, not on how another country reconstructs that dividend for its own tax accounting.

So when you receive AUD 700 in cash, that’s the income. The rest of the numbers on the page may matter in Australia, but they don’t automatically cross borders with you.

Why franking credits themselves are not US-taxable income

A franking credit isn’t cash. You don’t receive it. You can’t transfer it. You can’t spend it on groceries or reinvest it in shares. It exists as a tax attribute inside the Australian system.

That distinction is doing all the heavy lifting here.

From a US perspective, franking credits represent Australian company tax paid by the company, not income received by you. There’s no constructive receipt. No economic control. Nothing that looks like income under US rules.

The IRS does not require US taxpayers to “gross up” dividends to reflect foreign corporate tax paid. So even though Australia treats the franking credit as part of the dividend story, the US simply ignores that part of the narrative.

Seeing a number on a statement does not make it income. Receiving money does.

What you actually report on a US tax return

In practice, the reporting is far less dramatic than the paperwork suggests.

You report the cash dividend you received, converted to US dollars using an appropriate exchange rate. That’s the figure that goes on your US return.

You do not include:

• the franking credit amount
• the grossed-up dividend figure
• any notional tax amounts shown for Australian purposes

If your statement shows AUD 700 cash and AUD 300 in franking credits, only the AUD 700 matters for US income reporting. The rest stays behind.

Why lowering Australian tax doesn’t turn franking credits into income

This is where people sometimes hesitate. “But the franking credit reduced my Australian tax. Doesn’t that count as a benefit?”

It is a benefit. Just not income.

A tax offset that reduces what you owe is not the same thing as money paid to you. If the Australian Tax Office applies a credit internally and your tax bill shrinks, nothing new has been received on the US side. No cash changed hands. No income was created.

From the IRS’s point of view, a reduction in foreign tax is not itself taxable income unless it’s actually paid out to you as cash. Franking credits usually aren’t.

However, if you receive an actual cash refund/payment connected to foreign tax, the US treatment can change. The IRS has specific rules for foreign tax refunds and FTC adjustments, so that’s a moment to slow down and check the details.

Where things can get more complicated

While franking credits themselves are relatively clean from a US income perspective, Australian investments don’t always stay simple.

Australian managed funds and ETFs often raise separate US issues, especially around classification and reporting. In some cases, the bigger US tax risk isn’t whether you reported a franking credit as income, but whether the investment triggers more complex US rules that sit quietly in the background.

That’s a different conversation. But it’s worth knowing where the real edges tend to be.

Where professional help can benefit you

This is one of those areas where the numbers look loud, but the correct US treatment is quiet and precise. Getting it right isn’t about clever planning. It’s about understanding where one tax system ends and the other begins.

Choose a firm that knows how to help US citizens in Australia report dividends accurately, prevent income from being overstated on a US return, and recognize investment issues that may carry larger tax consequences than they initially appear. When you’re dealing with two tax systems at the same time, clear cross-border expertise is far more reliable than guesswork.