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Several Ways Being Married to a Non-US Resident Can Affect Your Taxes.

Several Ways Being Married to a Non-US Resident Can Affect Your Taxes.

Though international marriages have always occurred, they are much more common in today's highly accessible world than they ever have been in the past. It is essential that couples in marriages between U.S. citizen/resident aliens and residents of another country have a good understanding of the fact that their taxes will not be as simple as those of other couples – a marriage between a citizen and a nonresident requires specialized accounting practices in order to avoid substantial tax consequences. 

As far as the Internal Revenue Service is concerned, a person who is a U.S. citizen is treated in exactly the same way as a person who has become a permanent U.S. resident but who is not a citizen. A U.S. resident alien is a person that holds a green card or who has spent enough time in the U.S. in the current or previous two years to meet a “substantial presence test.” When a person who falls into either of those categories is married to a nonresident alien, U.S. tax law requires that the couple select one of two possible filing statuses on their tax return. The two options are Married Filing Jointly and Married Filing Separately.

When electing the status of Married Filing Jointly, the couple is required to pay U.S. taxes on the global income from both spouses on their joint return. When electing the Married Filing Separately option, the spouse who is the citizen/resident files their own married but filing separate return that includes their U.S. and global income but not that of their nonresident spouse; if the nonresident spouse has income from a U.S. source then they are also required to file a married but filing separate return on that income.

Choosing between the two is an important decision, as it can have a significant impact on the couple's tax rate. When the couple elects to file as Married Filing Jointly, they get the benefit of that associated lower tax rates and have a higher standard deduction. They are also each able to claim a personal exemption of $4,000. For 2015, the difference in standard deduction between filing married filing jointly or married filing separately is the difference between $12,600 and $6,300. Despite this advantage, there may still be good reason to file as Married Filing Separately: if the nonresident spouse's income from outside the country is significant, it may boost the income tax rate to the point where it doesn't make sense.

One of the things that couples must take into consideration when making the decision whether to elect married filing separately or jointly is the 3.8% surtax on net investment income that higher income taxpayers with investment income are subject to. The income threshold on this surtax is $250,000 for married taxpayers who file jointly and $125,000 for those filing separately, but nonresident aliens are not subject to this surtax. The difference between having to pay the 3.8% surcharge and not having to pay it can make a substantial difference in the couple's tax debt. Similarly, the couple needs to think about the earned income tax credit, which they can only take advantage of if they file jointly.

The process of electing Married Filing Jointly requires that both couples make that election on their tax returns and that both sign and attach the appropriate form to that return. This needs to be done for the first year in which that election is being selected. If the nonresident spouse does not have an individual tax payer identification number (ITIN) then they will need to get one – they will not be able to get a Social Security number because they will not qualify for one.

The decision about the appropriate way for a couple to file their taxes under these circumstances can be very complicated. There are a number of variables that must be closely examined in order to choose the election that is most beneficial.

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Bret Willoughby

Bret Willoughby

Bret Willoughby is a practicing tax preparer for expats throughout the world. He created Providence Payroll to meet the needs of Churches, not-for-profit organizations and businesses with remote workers. His web-based payroll processing service benefits both employers and remote workers with an easy way to access payroll information. Clergy have unique payroll and tax-related issues, one that Providence Payroll is qualified to manage.

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