Taxes are most probably the last thing on expats’ minds when they fall in love with a foreigner. Once the wedding bells have chimed and the dust has settled however, understanding the US tax implications should be on every American expat married to a foreigner’s to-do list.
This will be the first time that you hear your new spouse referred to as an alien, either resident or non-resident, as the IRS takes a less romantic view of them than you do.
If your foreign spouse is a green card holder but not a US citizen, they still have to file their own US tax return if they earn over around $10,000 (or just $400 of self-employment income), despite living abroad. In this scenario, you may benefit from filing jointly, as this will give you a higher standard deduction, as well as a personal exemption each.
If your foreign spouse isn’t a US citizen or green card holder meanwhile, you have three options in terms of your filing status: ‘married filing separately’, ‘married filing jointly’, and ‘head of household’. If in doubt as to which to choose, as always, seek help from an expat tax specialist, as making the wrong choice could negatively affect your tax liability.
Married filing separately
If you check ‘married filing separately’, your foreign spouse will remain a non-resident alien in the IRS’s eyes, and they won’t have to file and pay US taxes.
This can be a good option if your spouse has significant income levels (e.g. more than the Foreign Earned Income Exclusion limit of around $100,000), or if you think they will in future, or if they have significant assets or investments that will at some point be liable to US capital gains or other taxes, as well as extra filing requirements relating to FATCA and FBAR.
It’s worth thinking long term, as perhaps they will inherit money, investments, or assets at some point, or their income will increase significantly over time. In any of these scenarios, it will be advantageous in the long run to exclude their finances from US tax
“Expats who are U.S. citizens married to non-U.S. citizens face an additional layer of complexity when they file their taxes.”
– The Wall Street Journal
Filing separately is also a good idea if you are earning a very high salary or have significant investments and assets, as you can gift them to your foreign spouse over time to take them out of reach of the US taxman. (This would only be a good strategy if your spouse isn’t liable to pay higher taxes on them to a foreign government of course, so it depends on where you live and what your circumstances are).
Married filing jointly
Married filing jointly brings your spouse into US tax liability and makes them a ‘resident alien’ in the eyes of the IRS.
This is a good strategy if they are earning very little or nothing, as it will reduce your tax liability by letting you apply both your and your spouse’s deductions and exclusions to your combined income, which in this case would more or less be just your income.
If you go down this road though, you will also have to go through the process of registering your foreign spouse as a US tax payer.
This will include obtaining them a US Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
Head of household
If you have dependent children who are US citizens with social security numbers living with you, and you pay for at least half of your household’s living expenses, you can file as ‘head of household’.
Similar to filing separately, this option allows you to leave your foreign spouse outside US tax liability, but it gives you a higher standard deduction and lower effective tax rates.
While this article is intended to give you an overview of filing options for American expats married to foreigners, when it comes to minimizing your US tax liability, the devil is often in the detail. How much you both earn, what investments and assets you both have (and may have in future), and the tax regime in the country where you live are all important factors. As such, if you have any doubts or questions about your US tax situation as an expatriate married to a foreigner, we strongly recommend that you contact a US expat tax specialist for some advice.