How US Citizens File Taxes When Married to a Foreign Spouse

How US Citizens File Taxes When Married to a Foreign Spouse

A Guide to Filing Taxes When Married to a Foreign Spouse

When a US person is married to a Foreign National Non-Resident Alien, there are important US tax implications and consequences when filing a US tax return. Even though the foreign spouse is not a US person for tax purposes, once they take the proactive step of filing a joint tax return with a US citizen or other US person, they become subject to US tax. Sometimes, this may benefit the taxpayers to file jointly — especially when the foreign spouse may have small amounts of income but the spouses will benefit from the Married Filing Jointly tax brackets. Other times, it may work in reverse and actually negatively impact the tax returns in situations in which the foreign spouse has high income with no tax credits and/or has foreign accounts and assets to disclose that they otherwise would not provide to the IRS. Let’s look at five important facts about filing US taxes when a person is married to a foreign spouse.

6013 (g) Election

Technically, in order for a Non-Resident Alien (NRA) to file a joint tax return with a US person, they will generally make a 6013(g) election. The election is not necessarily difficult, but it can be time-consuming. It is safe to say that many taxpayers do not formally make the election and typically it does not result in any significant consequence from the IRS, but something to keep in mind as to general procedures.

Both Spouse’s Incomes are Reportable

One of the biggest misconceptions that a US person is that when they file a joint tax return with a foreign spouse – that the foreign spouse’s income is not taxable, but that is incorrect. The United States taxes US individuals on their worldwide income. Therefore, if a US person and foreign spouse file a joint US tax return together, then both of their incomes are included as taxable income. This is true, even if the foreign spouse resides overseas and earns all their money from foreign sources.

International Reporting Forms

When a person falls a joint tax return — and either spouse has foreign assets — then these assets are required to be disclosed on the US tax return. There are some exceptions, exclusions, and limitations — but for the most part, when spouses file together as jointly, they have to include their joint income, along with their joint foreign assets.

FBAR for Non-Resident Spouse

One exception to the rule about international reporting is FBAR filing when a person is a non-resident foreign spouse with no US person tax status. In this type of scenario, the foreign spouse (generally) does not have to file the FBAR. This is true, even in a situation in which the 6013(g) election is made because typically the 6013(g) election does not result in a non-US person having to file the FBAR (noting, the distinction between the FBAR and some of the other common international reporting forms is that the FBAR is not a tax form).

Foreign Earned Income & Foreign Tax Credits

Taxpayers who file jointly may be able to utilize certain mechanisms to reduce or eliminate their US tax liability. For example, taxpayers may qualify to use Foreign Tax Credits or apply the Foreign Earned Income Exclusion and/or Foreign Housing Exclusion. Even if a person qualifies for these exclusions or credits, they are still required to report the income but can claim the exclusion on Form 2555 or foreign tax credit on Form 1116.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the pension tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. But, if a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

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