Expats With a Foreign Spouse: What You Need to Know About Filing US Taxes
No one really wants to think about taxes while they are on their honeymoon. If you marry a foreign national spouse, however, it’s important to consider the impact on your US taxes (when the time is right, of course!).
In this article, we will go over some of the most common tax questions we get from our US expat clients who are married to foreign (also known as nonresident alien) spouses:
- – Does my foreign spouse need to file a US tax return?
- – Should we file jointly or separately?
- – How do I file my US tax return jointly with my foreign spouse?
Does my foreign spouse need to file a US tax return?
Whether or not your foreign spouse needs to pay US taxes depends on the following factors:
Factor #1: Your foreign spouse’s residency status
Your foreign spouse is a US Citizen or has a Green Card
All US citizens and Green Card holders must file their US tax returns yearly. US citizens & green card holders retain this requirement, even if they physically live overseas. Why? It’s because of the US citizenship-based taxation system.
Regardless of where they live, American expats, including Green Card holders, must declare their worldwide income to the IRS. So if your foreign spouse is a US citizen or Green Card holder, they’ll likely have to file a US tax return each year.
Read more: What Is Citizenship-Based Taxation?
Your foreign spouse passes the Substantial Presence Test
Even if your spouse isn’t a green card holder, they still may be considered a US tax resident if they pass the Substantial Presence Test.
To meet the test, your foreign spouse must be present in the US for at least 31 days during the current year. On top of that, they must also have spent 183 days in the US across three years.
This timespan must include the current year and the two immediately prior, prorating days from earlier years as follows:
- – Count all the days that they were present in the current year
- – Add ⅓ the number of days they were physically present in the US during the previous year
- – Add ⅙ the number of days they were physically present in the US during the second prior year
If the sum of these days in the US equals 183 or higher, your foreign spouse is considered a US tax resident and may need to file a US tax return.
Factor #2: Your foreign spouse has US-sourced income
Passive income originating from the US qualifies as US-sourced income, regardless of where the person receiving the payment currently lives. That can include rental income, interest, or dividends.
If your foreign spouse receives any form of US-sourced income, they must file a return to declare it with the IRS, even if they’re not a US citizen.
For example, let’s say you are an American citizen married to a Brazilian partner who doesn’t hold a green card and only spends about 3 weeks in the US each year. However, your Brazilian spouse has various investments in the US, such as a home in San Diego, California, and an apartment in Chicago, Illinois, that generates rental income.
In this case, while your foreign spouse may not be a resident of the United States, their income qualifies as US-sourced income because it is physically situated there. Your Brazilian partner will have to file a US tax return (Form 1040NR) to the IRS and declare any income the US-based properties generate.
Factor #3: You and your foreign spouse elect to file jointly
If your foreign spouse is a nonresident, you can declare your spouse as a US resident for tax purposes by making a special election with the IRS on your tax return. You can benefit from the higher standard tax deduction that comes with filing jointly as a married couple, and other tax advantages that we’ll discuss a bit later.
For example, you are a US citizen married to a French citizen that doesn’t have any income. If you elect to file your taxes jointly, you’ll be eligible for a standard deduction of $25,100 instead of $12,550.
Quick callout – if you elect to file jointly with your foreign spouse, which in turn treats them as a US resident for tax purposes, their worldwide income, just like yours, becomes taxable. That might not seem a problem right now if your spouse doesn’t currently work or makes little income.
However, in the long term, you’re roping your spouse into exposure to the US tax system. If your foreign spouse starts to increase their earnings level, they’ll have to pay taxes to the IRS on that income.
When you elect to file jointly with your foreign spouse the IRS expects you to file jointly moving forward, as the election is continuous, until you opt out, which you can only do once. In other words, you can’t just declare your spouse one year and not declare them the next: you only have the option to turn this election on and then off again once.
If you decide not to declare your foreign spouse as a resident, you might be able to file with the head of household status.
This will depend on whether you are responsible for more than 50% of your household expenses, and whether a qualifying person (which can include dependent children, parents, and a few others) lives in your household with you for more than half of the year.
If you file using head of household status, you’ll benefit from a standard tax deduction of $18,880. You can learn more about the head of household status on this IRS page.
Should my spouse & I file jointly or separately?
There are a handful of advantages to filing jointly with your foreign spouse! If your foreign spouse decides to file their taxes jointly with you, you’ll benefit together from a higher standard tax deduction.
Married couples that file jointly get a standard tax deduction of $25,100. On the other hand, the standard deduction for single or married filing separately filers is only $12,550.
(Quick glossary check: A standard deduction is an amount that filers may subtract from their income before income tax is applied.)
They can also take advantage of the following tax credits:
- – Exclusion for Adoption Expenses
- – Child and Dependent Care Tax Credit
- – Earned Income Tax Credit
- – American Opportunity Tax Credits
How do I file my US tax return jointly with my foreign spouse?
Seems obvious, but you’ll need to select the Married Jointly Filing status when filing your tax return. The tax return must declare one spouse is a US citizen, while the other is a non-resident alien. Both partners must sign a document that is attached as an election statement to the return.
Next, you must register your foreign spouse as a US taxpayer either through a Social Security Number (SSN) – which they’re likely ineligible for without US tax residency – or an Individual Taxpayer Identification Number (ITIN). If your foreign spouse has neither an SSN nor ITIN, here are the forms you must file to get them:
- – Social Security Number (SSN): You’ll need to file Form SS-5-FS to the Social Security Administration (SSA).
- – Individual Taxpayer Identification Number (ITIN): You must file Form W-7 to the IRS to apply for an ITIN.
The ITIN application can be submitted with the US tax return by mail to the IRS. Social security applications are typically submitted at US social security offices or US embassies and consulates located abroad.
Still have questions about filing your US taxes with a foreign spouse? Let Bright!Tax Help!
Marriage with a foreign spouse can change how you (should) file your taxes. Things can get more complex if you decide to live in your foreign spouse’s country permanently.
If you still have questions about filing US taxes with a foreign spouse or declaring your worldwide income, Bright!Tax can help. Our team of CPAs can assess the situation with your foreign spouse to find the best solution for you both.
Get started today by scheduling a call with our team. We’re standing by and ready to assist!