Called IRS, Called Marketplace, So confused--tax help PLEASE.

[Tee and Megan 10]

Good morning VJ community,

When my husband (then fiance) arrived in the U.S. on October 18th, 2014 on a K-1, I called the Health Insurance Marketplace (not knowing much about taxes or insurance) to see if he was eligible for healthcare and if we'd have to worry about the penalty (I have health insurance through my mother for another year or two).

I was told by two different employees on the Marketplace hotline that he wasn't eligible for health insurance because he didn't have a Green Card yet and not to worry about it until he received his GC. Thus, not knowing anything about Exemption Certificate Numbers or taxes, I just left it at that, thinking we'd get him insurance once his Green Card came in the mail. (We filed AOS back in January but still haven't heard anything about his GC yet)

When I went to file taxes, claiming him on my tax return by filing "married jointly," I was told by the MarketplaceI needed to fill out form 8965 to claim him as exempt from health insurance and to avoid the penalty. However, despite their having told me he was exempt from having health insurance until his Green Card came when I called before, this time when I called, even after being transferred to the Advanced Solutions Center, they couldn't give me any answers or tell me how he was exempt. They told me to call the IRS.

I called the IRS and they too, had to send our case to some "Advanced Solutions Center" because they didn't understand what a K-1 visa means or the GC process of AOS from a K1.

When the IRS got back to me, they said he was qualified for an exemption because he wasn't a USC or Permanent Resident yet. They called this Exemption C. I asked them several times to clarify that he was exempt under this provision, I think I was also clear to stress that he is indeed here legally, (in the past one of the health care navigators seemed to think I was trying to apply for health insurance for my illegal husband) .

But when I went to look up Exemption C it says this:

• A resident alien who was a citizen of a foreign country with which the U.S. has an income tax treaty with a nondiscrimination clause, and you were a bona fide resident of a foreign country for the tax year; or

• Not a U.S. citizen, not a U.S. national, and not an individual lawfully present in the U.S. For more information about who is treated as lawfully present for purposes of this coverage exemption, visithealthcare.gov.

I don't think Cambodia is under the nondiscrimination clause as far as I know, but he is lawfully present, so now I'm thinking this exemption doesn't apply to him either and the IRS agent wasn't aware that a K-1 is a valid, legal visa and he will be a valid resident of the US when he gets his GC.

What do you all think?? I know this is a super long post,and I apologize. I'm just so, so frustrated. I would've gotten him insurance, if I had thought he was eligible, but I trusted the Marketplace and by the time I started to question their assertion that he was exempt, the Marketplace had already closed.

Should I trust the IRS agent and put down exemption C? or should I just give up and pay the penalty for this year and try as hard as I can to get him insurance as soon as possible (despite the fact that his GC probably won't get here for another two months) ?

thank you all SO much

Megan and TEe

[TheCaptain 67]

I think you should go and see a registered tax agent. You can get audit protection from them.

[Sukie 1,439]

Good morning VJ community,

When my husband (then fiance) arrived in the U.S. on October 18th, 2014 on a K-1, I called the Health Insurance Marketplace (not knowing much about taxes or insurance) to see if he was eligible for healthcare and if we'd have to worry about the penalty (I have health insurance through my mother for another year or two).

I was told by two different employees on the Marketplace hotline that he wasn't eligible for health insurance because he didn't have a Green Card yet and not to worry about it until he received his GC. Thus, not knowing anything about Exemption Certificate Numbers or taxes, I just left it at that, thinking we'd get him insurance once his Green Card came in the mail. (We filed AOS back in January but still haven't heard anything about his GC yet)

When I went to file taxes, claiming him on my tax return by filing "married jointly," I was told by the MarketplaceI needed to fill out form 8965 to claim him as exempt from health insurance and to avoid the penalty. However, despite their having told me he was exempt from having health insurance until his Green Card came when I called before, this time when I called, even after being transferred to the Advanced Solutions Center, they couldn't give me any answers or tell me how he was exempt. They told me to call the IRS.

I called the IRS and they too, had to send our case to some "Advanced Solutions Center" because they didn't understand what a K-1 visa means or the GC process of AOS from a K1.

When the IRS got back to me, they said he was qualified for an exemption because he wasn't a USC or Permanent Resident yet. They called this Exemption C. I asked them several times to clarify that he was exempt under this provision, I think I was also clear to stress that he is indeed here legally, (in the past one of the health care navigators seemed to think I was trying to apply for health insurance for my illegal husband) .

But when I went to look up Exemption C it says this:

• A resident alien who was a citizen of a foreign country with which the U.S. has an income tax treaty with a nondiscrimination clause, and you were a bona fide resident of a foreign country for the tax year; or

• Not a U.S. citizen, not a U.S. national, and not an individual lawfully present in the U.S. For more information about who is treated as lawfully present for purposes of this coverage exemption, visithealthcare.gov.

I don't think Cambodia is under the nondiscrimination clause as far as I know, but he is lawfully present, so now I'm thinking this exemption doesn't apply to him either and the IRS agent wasn't aware that a K-1 is a valid, legal visa and he will be a valid resident of the US when he gets his GC.

What do you all think?? I know this is a super long post,and I apologize. I'm just so, so frustrated. I would've gotten him insurance, if I had thought he was eligible, but I trusted the Marketplace and by the time I started to question their assertion that he was exempt, the Marketplace had already closed.

Should I trust the IRS agent and put down exemption C? or should I just give up and pay the penalty for this year and try as hard as I can to get him insurance as soon as possible (despite the fact that his GC probably won't get here for another two months) ?

thank you all SO much

Megan and TEe

I am not a tax accountant. But...a K-1 visa is NOT a residency visa. It is a temporary visa and is only good IF you marry within 90 days of POE AND file AOS. Therefore, I think Exemption C is exactly the right thing for 2014 for your husband. While he is lawfully present in the US under the K-1, he is not a Legal Permanent Resident (LPR) for 2014 (as I understand the immigration law). If you wish to feel a little safer, you could file Married, Filing Separately (if it doesn't hurt you money-wise) for 2014.

Sukie in NY

[Tee and Megan 10]

I am not a tax accountant. But...a K-1 visa is NOT a residency visa. It is a temporary visa and is only good IF you marry within 90 days of POE AND file AOS. Therefore, I think Exemption C is exactly the right thing for 2014 for your husband. While he is lawfully present in the US under the K-1, he is not a Legal Permanent Resident (LPR) for 2014 (as I understand the immigration law). If you wish to feel a little safer, you could file Married, Filing Separately (if it doesn't hurt you money-wise) for 2014.

Sukie in NY

Thanks Suki! That is what the IRS agent seemed to think too. Even though we married and filed for AOS within 90 days. His argument was simply that my husband is still not an LPR and not a USC, so he's just not eligible for health insurance. I'm still nervous because I don't want to file taxes and have whoever receives them think that he's illegal and have that somehow get back to the USCIS (because we followed ALL the rules for AOS). Sigh. I thought about filing separately,but I thought it would be good to have "married, filling jointly" taxes to show at our AOS interview

[Zedayn 485]

I am not a tax accountant. But...a K-1 visa is NOT a residency visa. It is a temporary visa and is only good IF you marry within 90 days of POE AND file AOS. Therefore, I think Exemption C is exactly the right thing for 2014 for your husband. While he is lawfully present in the US under the K-1, he is not a Legal Permanent Resident (LPR) for 2014 (as I understand the immigration law). If you wish to feel a little safer, you could file Married, Filing Separately (if it doesn't hurt you money-wise) for 2014.

Sukie in NY

From the immigration perspective you are correct. But we are talking about taxes here.

A non-resident alien that is married to a US citizen spouse can be considered as a resident alien for the entire year for tax purposes. You need to make this election if you want to file your taxes as Married filing Joint. So, for tax purposes, the husband is considered as a Resident Alien and is eligible to use exemption C.

[Zedayn 485]

Thanks Suki! That is what the IRS agent seemed to think too. Even though we married and filed for AOS within 90 days. His argument was simply that my husband is still not an LPR and not a USC, so he's just not eligible for health insurance. I'm still nervous because I don't want to file taxes and have whoever receives them think that he's illegal and have that somehow get back to the USCIS (because we followed ALL the rules for AOS). Sigh. I thought about filing separately,but I thought it would be good to have "married, filling jointly" taxes to show at our AOS interview

Taxes and immigration are two different things. Legally your husband is considered as a non-resident alien until he has his green card. But when filing taxes, you can choose to elect for him to be a resident alien for tax purposes. You need to make this election in order to file jointly with him.

[Sukie 1,439]

Taxes and immigration are two different things. Legally your husband is considered as a non-resident alien until he has his green card. But when filing taxes, you can choose to elect for him to be a resident alien for tax purposes. You need to make this election in order to file jointly with him.

Zedayn, they didn't file for AOS until January, 2015. So until they file for AOS, the husband is still considered to have non-immigrant status. Your statements are correct for IR-1/CR-1 visas - the day a spouse sets foot at POE with an IR-1/CR-1, they are considered to be a tax resident.

I do not believe the same thing is true - for tax purposes - with the K-1, until the AOS is filed. If I am incorrect, I'd love a reference so I can correct my thinking.

If the OP chooses to file Married, Filing Jointly, (she does have that option as long as he has a Social Security Number) because the husband is considered a tax resident for 2014, then ALL of his 2014 income world-wide must be reported, as well as all the foreign banking information. I couldn't tell if the OP's husband had a Social Security Number yet or not.

Here is my source from the IRS:

Introduction to Residency Under U.S. Tax Law

The taxation of aliens by the United States is significantly affected by the residency status of such aliens.

The residency rules for tax purposes are found in I.R.C. § 7701(b). Although the tax residency rules are based on the immigration laws concerning immigrants and nonimmigrants, the rules define residency for tax purposes in a way that is very different from the immigration laws. Under the residency rules of the Code, any alien who is not a RESIDENT ALIEN is a NONRESIDENT ALIEN. An alien will become a RESIDENT ALIEN in one of three ways:

1. By being admitted to the United States as, or changing status to, a Lawful Permanent Resident under the immigration laws (the Green Card Test);
2. By passing the Substantial Presence Test (which is a numerical formula which measures days of presence in the United States); or
3. By making what is called the "First-Year Choice" (a numerical formula under which an alien may pass the Substantial Presence Test one year earlier than under the normal rules). Refer to the discussion of "First-Year Choice" in Chapter 1 of Publication 519, U.S. Tax Guide for Aliens.

Until the AOS is approved, the husband is NOT considered a Lawful Permanent Resident. He IS here legally, on a non-immigrant visa.

Sukie in NY

[Tee and Megan 10]

Thank you all so much for the responses. Suki, he does have an SSN and just got his EAD; does that change things?

[Zedayn 485]

Zedayn, they didn't file for AOS until January, 2015. So until they file for AOS, the husband is still considered to have non-immigrant status. Your statements are correct for IR-1/CR-1 visas - the day a spouse sets foot at POE with an IR-1/CR-1, they are considered to be a tax resident.

I do not believe the same thing is true - for tax purposes - with the K-1, until the AOS is filed. If I am incorrect, I'd love a reference so I can correct my thinking.

Ok here is your reference:

Publ. 519 U.S. Tax Guide for Aliens http://www.irs.gov/pub/irs-pdf/p519.pdf

Look at the bottom of page 9 where it says Nonresident Spouse Treated as a Resident:

If, at the end of your tax year, you are married and one spouse is a U.S. citizen or a resident alien and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U.S. resident.[...] If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year.

In other words, by being married to a US citizen you can be considered a resident alien for tax purposes.

[Tee and Megan 10]

Taxes and immigration are two different things. Legally your husband is considered as a non-resident alien until he has his green card. But when filing taxes, you can choose to elect for him to be a resident alien for tax purposes. You need to make this election in order to file jointly with him.

Ok here is your reference:

Publ. 519 U.S. Tax Guide for Aliens http://www.irs.gov/pub/irs-pdf/p519.pdf

Look at the bottom of page 9 where it says Nonresident Spouse Treated as a Resident:

If, at the end of your tax year, you are married and one spouse is a U.S. citizen or a resident alien and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U.S. resident.[...] If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year.

In other words, by being married to a US citizen you can be considered a resident alien for tax purposes.

I really appreciate the responses and research. I've read this before, but helps to see it again. If I claim him on my taxes, then the idea would be we need to pay the penalty and not use the IRS agent's advice to put exemption C?

[Zedayn 485]

No, you claim the exemption C. You do not need to pay a penalty since your husband is exempt. The IRS agent was correct.

[Sukie 1,439]

Ok here is your reference:

Publ. 519 U.S. Tax Guide for Aliens http://www.irs.gov/pub/irs-pdf/p519.pdf

Look at the bottom of page 9 where it says Nonresident Spouse Treated as a Resident:

If, at the end of your tax year, you are married and one spouse is a U.S. citizen or a resident alien and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U.S. resident.[...] If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year.

In other words, by being married to a US citizen you can be considered a resident alien for tax purposes.

The operative words are "can be considered" and "you can choose". The OP can consider her husband a tax resident and file jointly, if she wishes to. But she really doesn't want to in my opinion - because if she does, then she exposes herself to a penalty because he is not covered by a medical plan, AND he'll have to declare all his income for 2014, and file the FBAR, even though he was only in the US for 10 weeks.

It is not MANDATORY for him to be considered as a tax resident, as it is with an IR-1/CR-1.

Quite frankly, OP, I really think you are better off filing Married, Filing Separately for 2014. It's not going to hurt you as far as AOS. I do understand the emotional appeal of filing jointly. If your hubby had come to the US in the first half of the year, then they might have questions. But he only got here in October, and you didn't file for AOS until 2015.

We married in 2013, and wanted to file jointly, because we were so happy to be married. But...we found out, to our horror, that the way the US was going to treat the sale of our Australian house was going to cost us a fortune. So we filed Married, Filing Separately for 2013, but since she immigrated in July 2014, we're filing Jointly this year - but we are having to report ALL her income from her home country, as well as each having to fill out the FBAR report. In addition, our accountant is running the numbers both ways (Joint and Separate) to see which is more advantageous for us. OP, you might want to ask your accountant to do the same.

It is hard for ALL of us going through this process that the tax laws and the immigration laws don't always synch up!

Good luck to all during the tax season!

Sukie in NY

[Zedayn 485]

The operative words are "can be considered" and "you can choose". The OP can consider her husband a tax resident and file jointly, if she wishes to. But she really doesn't want to in my opinion - because if she does, then she exposes herself to a penalty because he is not covered by a medical plan, AND he'll have to declare all his income for 2014, and file the FBAR, even though he was only in the US for 10 weeks.

It is not MANDATORY for him to be considered as a tax resident, as it is with an IR-1/CR-1.

Quite frankly, OP, I really think you are better off filing Married, Filing Separately for 2014. It's not going to hurt you as far as AOS. I do understand the emotional appeal of filing jointly. If your hubby had come to the US in the first half of the year, then they might have questions. But he only got here in October, and you didn't file for AOS until 2015.

We married in 2013, and wanted to file jointly, because we were so happy to be married. But...we found out, to our horror, that the way the US was going to treat the sale of our Australian house was going to cost us a fortune. So we filed Married, Filing Separately for 2013, but since she immigrated in July 2014, we're filing Jointly this year - but we are having to report ALL her income from her home country, as well as each having to fill out the FBAR report. In addition, our accountant is running the numbers both ways (Joint and Separate) to see which is more advantageous for us. OP, you might want to ask your accountant to do the same.

It is hard for ALL of us going through this process that the tax laws and the immigration laws don't always synch up!

Good luck to all during the tax season!

Sukie in NY

You are making this way more complicated than it needs to be. You are correct it is not mandatory, it is a choice to be considered as a resident alien for tax purposes.

You are also correct that the husband would need to declare his income from his country. However, unless the husband has significant funds (exceeding $10,000 USD) in a bank, or other financial institution, in his country, the FBAR does NOT need to be filed.

Form 2555-EZ (Foreign Income Exclusion) is the only form that needs to be filed, which will allow him to exempt his foreign income.

Married filing jointly could be a smarter choice because the tax burden is lower and standard deduction is higher than filing separately. You could end up with a larger refund by filing joint.

[asisflyer 47]

QUICK SUMMARY: The Answers You Want - YES TO INSURANCE - AVOID Mandate issue via MFS NRA filing for 2014.

1. 797-C Receipt Notice for I-765 and/or I-1485 is sufficient for Healthcare.gov --- Apply online and then upload the forms as documentation later. Note in their text that a valid immigration status for Healthcare.gov is APPLIED FOR/PENDING ADJUSTMENT OF STATUS. Later on, the special mixed status department will review and approve.

1. You husband is a Non-Resident Alien until he meets either: GREEN CARD TEST or PHYSICAL PRESENCE TEST. (As written previously) Green Card test reverts to Jan 1 of calendar year of approval. Thus is 2014 DOES NOT MEET GREEN CARD TEST. Physical Presence is a calculation. If you meet the text, you can DUAL STATUS TAXPAYER - (NonResident partial year and Resident Partial year return). Unless your husband spent a lot of time in U.S. on another visa type, most likely you do not meet substantial presence. THUS HUSBAND IS VERY LIKELY A NON-RESIDENT ALIEN in 2014.

2. Non-Resident Aliens are NOT required to filed a return unless they meet standard for U.S. derived income OR unless your CHOOSE TO CLASSIFY THEM AS RESIDENT FOR TAX PURPOSES. Even if you file NRA, You still write in Spouse' Name on return. Nevermind the interview. ACA/OBAMACARE exemption is not required for Non Resident Alien.

Thus he is NRA in 2014. After you have I-797c for I-485 AOS, you can apply on healthcare.gov.

problems solved right?

Edited March 23, 2015 by asisflyer

[Boiler 43,397]

He becomes eligible for O Care when you file for GC not when he becomes a LPR.

The mandate applies to many who are not US Citizens or Permanent Residents.