Taxes - non-resident spouse electing to be treated as non-resident

[elya 17]

So taxes will be a bit complicated this year.... for 2011 tax purposes my husband is a non-resident alien; in order for us to file jointly I see that we need to both submit a signed declaration saying we elect for him to be treated as a resident for tax purposes.

Can we still e-file while doing this or do we need to do paper file?

Does anyone have any recommendations as to a tax software or service provider that doesn't cost an arm and a leg and actually supports this situation? Turbotax cuts me off when I try to say that he is a non-resident and recommends I talk to a tax professional...

On that note, does anyone happen to know if interest income can also be exempted as foreign-earned income? I readily admit I have not yet dug deep into the IRS web site to find the answer, but if anyone happens to already know, I'd appreciate you sharing :-)

[kristen_maroc 126]

I need the answers to this too! How frustrating!

[sofya 10]

Is there a reason for you to file separately? If both of you (or even one of you) work, it will be financially more reasonable to file as married jointly. My husband and I filed jointly for four years, online, even when I was a non-resident on a student visa with no/little taxable income. Remember that when a USC is married to a non-citizen, it is the USC's right to file taxes jointly and claim a spouse deduction. If you exercise that right, your non-citizen spouse is considered a resident for tax purposes BY DEFAULT, there's no paperwork to file. That's it. You can file using any online software like Turbotax and such. Remember that filing jointly gives you a good deduction and can potentially move you to lower tax rate bracket (giving you more money back!), especially if your spouse had no or very little taxable income last year.

Don't worry! Just make sure you put all SSN/ITIN information there correctly and you'll be fine

Edited February 14, 2012 by sofya

[elya 17]

we are trying to file jointly; that's the whole point. But according to this information from the IRS

http://www.irs.gov/businesses/small/international/article/0,,id=96734,00.html

he is not a resident for tax purposes by default, we need to "declare" this. A guy at Jackson Hewitt was sort of freaked out by the whole sitation as well... still hunting for someone who can actually process this with us. I'm almost tempted to try to just do our taxes myself.

Now that I am reading this again "Generally, neither you nor your spouse can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect and you are both taxed on worldwide income. However, the exception to the saving clause of a particular tax treaty might allow a resident alien to claim a tax treaty benefit on certain specified income."

Does it mean we CANNOT use the foreign earned income tax exclusion for him if we file jointly like this?

Maybe we do need to file seperately... but then he doesn't really need to file at all, does he? Can I file married filing seperately if he doesn't file?

[sofya 10]

Now that I am reading this again "Generally, neither you nor your spouse can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect and you are both taxed on worldwide income. However, the exception to the saving clause of a particular tax treaty might allow a resident alien to claim a tax treaty benefit on certain specified income."

From my training at IRS I believe this has nothing to do with your husband's resident status for tax purposes. It means here that if you as a USC lived in Russia (=foreign country) and received salary there from a Russian company, you'd have to pay taxes in the U.S. even if you have already paid taxes on it in Russia as well ("tax treaty benefit" is essentially elimination of double taxation; it does not currently work for Americans employed abroad in many countries and receiving salaries locally). As far as I understand, yours is not this case. If your non-USC husband had no income in the U.S. last year, there's nothing for him to pay taxes on, and thus it does not preclude him from declaring his income as zero on a joint/married tax return.

Now, you can of course file as married but separately. Just the fact of getting married (doesn't matter to whom) gives you the right of filing as married, no matter whether jointly or separately. The choice is really yours - usually spouses prefer to do it jointly because the tax refund gets higher compared to separate filing. But in order to do that you need to calculate your returns on both scenarios and pick the best one.

If you file as married filing separately, your husband will need to file form 1040NR-EZ even if he had zero taxable income. The form is very easy, so I'm sure you guys won't have any problems doing two forms if you choose to.

Edited February 15, 2012 by sofya

[Nich-Nick 3,353]

So taxes will be a bit complicated this year.... for 2011 tax purposes my husband is a non-resident alien; in order for us to file jointly I see that we need to both submit a signed declaration saying we elect for him to be treated as a resident for tax purposes.

Can we still e-file while doing this or do we need to do paper file?

Does anyone have any recommendations as to a tax software or service provider that doesn't cost an arm and a leg and actually supports this situation? Turbotax cuts me off when I try to say that he is a non-resident and recommends I talk to a tax professional...

On that note, does anyone happen to know if interest income can also be exempted as foreign-earned income? I readily admit I have not yet dug deep into the IRS web site to find the answer, but if anyone happens to already know, I'd appreciate you sharing :-)

The IRS told me a few days ago that you can't efile when you have a statement to include. We paper-filed successfully in your same situation in 2008. I use TurboTax Basic ($29) and it handles the situation. The free online one will also do it but the whole free thing is a little more fiddly in general. On TurboTax the foreign income is reported way down the list in "less common income". There's a thread going in this forum about 2011 taxes in TurboTax. Scroll down and see if it helps.

[elya 17]

thank you both!

[elya 17]

From my training at IRS I believe this has nothing to do with your husband's resident status for tax purposes. It means here that if you as a USC lived in Russia (=foreign country) and received salary there from a Russian company, you'd have to pay taxes in the U.S. even if you have already paid taxes on it in Russia as well ("tax treaty benefit" is essentially elimination of double taxation; it does not currently work for Americans employed abroad in many countries and receiving salaries locally). As far as I understand, yours is not this case. If your non-USC husband had no income in the U.S. last year, there's nothing for him to pay taxes on, and thus it does not preclude him from declaring his income as zero on a joint/married tax return.

Now, you can of course file as married but separately. Just the fact of getting married (doesn't matter to whom) gives you the right of filing as married, no matter whether jointly or separately. The choice is really yours - usually spouses prefer to do it jointly because the tax refund gets higher compared to separate filing. But in order to do that you need to calculate your returns on both scenarios and pick the best one.

If you file as married filing separately, your husband will need to file form 1040NR-EZ even if he had zero taxable income. The form is very easy, so I'm sure you guys won't have any problems doing two forms if you choose to.

Sofya, this helps a lot. Are you sure he needs to file the 1040NR-EZ if we file seperately. I cannot find anything on the IRS web site that indicates he would have to file anything at all. He has no U.S. income and is not affiliated with any U.S. business for 2011.

I guess we will have to run through both scenarios and see how we come out ahead. But it's very challenging to get through even just one!!

Edited February 16, 2012 by elya

[Nich-Nick 3,353]

Sofya, this helps a lot. Are you sure he needs to file the 1040NR-EZ if we file seperately. I cannot find anything on the IRS web site that indicates he would have to file anything at all. He has no U.S. income and is not affiliated with any U.S. business for 2011.

I guess we will have to run through both scenarios and see how we come out ahead. But it's very challenging to get through even just one!!

Your choices are:

You (USC)-file Married Filing Separately

He -files nothing because he doesn't have US income

or

File jointly

You both must sign the statement that you elect for him to be treated as a resident alien for tax purposes. Pub 519, page 10 tells what to include in the statement.

You must include worldwide income (his earnings converted to US dollars)

Form 2555EZ to exclude his foreign earnings

The second is more time consuming but will result in more money for you most of the time because you get the benefits of having that extra person without extra income. His income gets excluded.

Edited February 16, 2012 by Nich-Nick

[elya 17]

Your choices are:

You (USC)-file Married Filing Separately

He -files nothing because he doesn't have US income

or

File jointly

You both must sign the statement that you elect for him to be treated as a resident alien for tax purposes. Pub 519, page 10 tells what to include in the statement.

You must include worldwide income (his earnings converted to US dollars)

Form 2555EZ to exclude his foreign earnings

The second is more time consuming but will result in more money for you most of the time because you get the benefits of having that extra person without extra income. His income gets excluded.

Thanks!!! The main reason I'm even considering the filing seperately is that he has interest income in addition to the earned income from his job. It seems like we can exclude the earned income from his job but not the interest income. That 30% flat tax takes a nice chunk out of the interest he earned :-(

I also think that filing seperately I can include him as an exemption, so we get close... so far it's looking like it will come down to how much exactly his earned interest was, which he is still trying to get a statement on.

[sofya 10]

I would also suggest reading through this very carefully: http://www.irs.gov/publications/p17/ch01.html

There are some cases listed which identify when you can (not should) file even if your income level is too low to file otherwise. In any case, check out the various tables and variables there to see if it would be helpful for your situation specifically.

[Gaijinsan 3]

So taxes will be a bit complicated this year.... for 2011 tax purposes my husband is a non-resident alien; in order for us to file jointly I see that we need to both submit a signed declaration saying we elect for him to be treated as a resident for tax purposes.

Can we still e-file while doing this or do we need to do paper file?

The issue of the signed declaration that you wish to treat your husband as a resident has already been raised. Also, if he does not already have a SSN or ITIN, you will need to complete form W-7 (with the required evidence; see W-7 instructions) and attach your 2011 tax return to it, then send the entire package to the address specified in the W-7 instructions.

From next year you would be able to e-file (unless there is an unrelated circumstance which precludes electronic filing -- unlikely).

Does anyone have any recommendations as to a tax software or service provider that doesn't cost an arm and a leg and actually supports this situation? Turbotax cuts me off when I try to say that he is a non-resident and recommends I talk to a tax professional...

Just tell TurboTax he is a resident (after all, this is exactly what you have just declared, for tax purposes). You can leave the SSN blank if you are going the W-7 route. TurboTax won't let you e-file, but you can print out the return, which is what you are going to need to do anyway.

On that note, does anyone happen to know if interest income can also be exempted as foreign-earned income? I readily admit I have not yet dug deep into the IRS web site to find the answer, but if anyone happens to already know, I'd appreciate you sharing :-)

Passive-category income cannot be excluded via the Foreign Earned Income Exclusion (Form 2555 or 2555-EZ). Only employment income may be excluded. You may be eligible to take a foreign tax credit (Form 1116) for any foreign taxes paid on that interest income. If the foreign tax exceeds the US tax liability, you will not owe anything further. If it is less, you will have to pay the difference.

Sadly, some of these topics can get complicated and I suspect that your garden-variety corner-store tax guy will not be very well-versed in them.

[Gaijinsan 3]

From my training at IRS I believe this has nothing to do with your husband's resident status for tax purposes. It means here that if you as a USC lived in Russia (=foreign country) and received salary there from a Russian company, you'd have to pay taxes in the U.S. even if you have already paid taxes on it in Russia as well ("tax treaty benefit" is essentially elimination of double taxation; it does not currently work for Americans employed abroad in many countries and receiving salaries locally).

Just to add some more detail: double taxation by the US is reduced/eliminated in two ways: (1) the Foreign Earned Income Exclusion, and (2) Foregn Tax Credits.

In this example, the US worker employed in Russia and paid in Russia can claim both of the above to offset US tax liability. However, if the US worker cannot exclude all of his/her income, and has insufficient foreign tax credits to cover the US tax liability on the remainder, the US worker will then have to pay the IRS the difference in taxes. For American citizens and LPRs working in high-tax jurisdictions overseas, there is usually little or not additional US tax liability. (Of course, this can vary - some places have very high taxes on employment income and very low taxes on passive income... As always, your mileage may vary.)

Both of these are complex topics. Publication 54 and the instructions for forms 2555 and 1116 will give some insight, but they're not exactly the most exciting reading.

(Those "tax treaty benefits" that you become ineligible for do have meaning, but not in this kind of case. One example would be if the nonresident spouse was working in the US and was exempt from US income tax based on a treaty with the alien's home country. If so, and if the nonresident alien agrees to be treated as a resident alien for tax purposes, he/she can no longer claim this treaty benefit. The OP's case doesn't seem to go here from what has been reported.)

As far as I understand, yours is not this case. If your non-USC husband had no income in the U.S. last year, there's nothing for him to pay taxes on, and thus it does not preclude him from declaring his income as zero on a joint/married tax return.

If a non-resident alien spouse decides to be treated as a resident for tax purposes, all of his/her worldwide income is to be reported on the relevant U.S. tax return..

Now, you can of course file as married but separately. Just the fact of getting married (doesn't matter to whom) gives you the right of filing as married, no matter whether jointly or separately. The choice is really yours - usually spouses prefer to do it jointly because the tax refund gets higher compared to separate filing. But in order to do that you need to calculate your returns on both scenarios and pick the best one.

Definitely. Calculate it both ways. Just bear in mind, once the non-resident alien declares himself/herself a resident for tax purposes, the declaration stands until one of the parties revokes it. Of course, once the spouse becomes an LPR, it is moot as you no longer have a choice about whether not to accept resident taxation.