Expat Taxes

The Tax Ramifications of Being Married to a Non-U.S. Citizen

The Tax Ramifications of Being Married to a Non-U.S. Citizen

What are the tax implications of being married to a non-citizen of the United States?

The answer is simple if your spouse is a resident alien (green card holder). As a resident alien, your non-citizen spouse is required to pay income taxes just like you, and he or she will be treated just like a U.S. citizen for tax purposes. You can file jointly, and your spouse will report and pay on his or her income and assets earned and acquired in the United States. In addition, as a resident alien, your spouse qualifies for and will need to apply for a Social Security number.

If your spouse is not in the United States legally, they are still taxed on their United States source income by filing a non-resident tax return (1040-NR). In some cases where the individual has met the substantial presence test they are taxed just like U.S. citizens, filing a 1040.

To meet to substantial presence test, your spouse must have been physically present in the United States on at least 31 days during the current year and 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting; All the days present in the current year, 1/3 of the days present in the first year before the current year, and 1/6 of the days present in the second year before the current year.

Any tax issues that your non-citizen spouse has with his or her country of origin should be taken up with a tax attorney or specialist who is in that country and is familiar with the tax laws for your spouse's situation.

If you are living in a foreign country with your spouse, either your spouse's country of origin or a third country altogether, filing taxes as a U.S. citizen becomes a little more complicated for you both. Here are the most important things you need to know.

Your Foreign-Born Spouse May File Jointly With You in the United States, Even if He or She Has Never Been Here

Your non- U.S. Citizen spouse living outside the US (non-resident) can elect to file jointly with the U.S. Citizen Spouse. However, this election is binding until revoked, and both spouses must agree to the election.

Once the election is made the joint U.S. tax return must include worldwide income of both spouses. This would require the non- resident spouse to obtain an ITIN. Most non- resident spouses living outside the US want to stay as far as possible from the US taxing authorities. But if the non- resident spouse obtains an ITIN number this can help the U.S. Citizen spouse when e-filing the 1040 tax return.

What Filing Status to Use

Since most non- resident spouses living outside the U.S. generally do NOT want to report their world-wide earnings to the U.S., the U.S. Citizen spouse will file as Married Filing Separately unless the U.S. Citizen spouse has dependents, then the Head of Household filing status can be used. In order for the U.S. Citizen spouse to use the Head of Household status, the dependent or children must have a Social Security or ITIN number.

Income and Assets May Be Subject to US Regulations Even if He or She Has Never Been Here

Once you marry your foreign-born spouse and have elected to file jointly, then his or her income and assets are combined with yours as joint income and assets for tax purposes in the United States.

If your foreign spouse did earn income and you are filing jointly, his or her income must be reported and converted into U.S. dollars from his or her local currency. He or she will only qualify for the foreign earned income exclusion if they spend less than a month in the US and take the Physical Presence test. More frequently the non-American spouse will take the Foreign Tax Credit. These two tax benefits are designed to make sure that people are not taxed twice on the same income.

There is a requirement that U.S. citizens living abroad report income they earned in a foreign country. If the husband and wife are filing jointly, they may need to report foreign assets to the IRS. If American citizens don't report their assets to the IRS, and they discover it, they risk serious financial, and even criminal, penalties.

What should you do?

Bi-National marriages are very complex, every couple is different, every situation is different, every country's tax regime is different and every fact pattern is different. Additional issues that should be discussed with your U.S. tax professional are how should assets be titled, the impact of health care and government pensions or Social Security benefits.

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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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