Common Spousal Visa & US Taxes, FBAR, FATCA & PFIC
When a non-resident alien obtains a U.S. visa and meets the substantial presence test, they may become subject to U.S. tax on their worldwide income, similar to a U.S. citizen or lawful permanent resident. Oftentimes, the non-resident alien will be married, and their spouse resides in the United States on a spousal visa such as H-4, L-2s, E-2S, E-3S, and J-2 (or other spousal visa). Visa holders need to know that in a situation in which the non-resident alien spouse files jointly with their US spouse who is on a visa such as an H-1B or L-1 — or even if the spousal visa holder files Married Filing Separately — they are unaware that they are also required to report their worldwide income just like their spouse is, as long as the spousal visa holder meets a substantial presence test.
Substantial Presence Test and Spousal Visa Holder (U.S. Taxes, FATCA & FBAR)
The Substantial Presence Test determines if a person is considered a U.S. person for tax purposes and is taxed on their worldwide income — even if they are not U.S. Citizens or Legal Permanent Residents. A person who is a U.S. Citizen or Legal Permanent Resident (Green Card Holder) is generally required to file a 1040 Tax Return. Moreover, if the person has foreign accounts, assets, or investments and meets the minimum threshold requirements, they may also be required to file an FBAR (Report of Foreign Bank and Financial Accounts) or other international information reporting forms. While the failure to comply with foreign account reporting may result in significant fines and penalties, the IRS offers several amnesty programs to assist the taxpayer with safely getting into compliance.
How to Calculate ‘Substantial Presence’
As a non-US citizen and non-US green card holder, you are generally only required to pay tax on “US Effectively Connected Income or FDAP” (money you earn while working in the United States or generate from U.S. investments). However, if you qualify for the Substantial Presence Test, then the IRS will tax you on your worldwide income.
IRS Substantial Presence Test generally means that you were present in the United States for at least 30 days in the current year and a minimum total of 183 days over 3 years, using the following equation:
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1 day = 1 day in the current year
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1 day = 1/3 day in the prior year
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1 day = 1/6 day two years prior
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Example A: If you were here 100 days in 2026, 30 days in 2025, and 120 days in 2024, the calculation is as follows:
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2026 = 100 days
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2025 = 30 days/3= 10 days
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2024 = 120 days/6 = 20 days
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Total = 130 days, so you would not qualify under the substantial presence test and NOT be subject to U.S. Income tax on your worldwide income (and you will only pay tax on money earned while working in the US).
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Example B: If you were here 180 days in 2026, 180 days in 2025, and 180 days in 2024, the calculation is as follows:
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2026 = 180 days
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2025 = 180 days/3= 60 days
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2012 = 180 days/6 = 30 days
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Total = 270 days, so you would qualify under the substantial presence test and will be subject to U.S. Income tax on your worldwide income, unless another exception applies.
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Example of How Substantial Presence Works
Michelle is a foreigner who first relocated to the United States with her spouse a few years ago and has been working in the U.S. on her spousal visa. Recently, Michelle updated her foreign financial institutions in India, the UK, and Australia with her U.S. addresses. Soon thereafter, she received FATCA letters from her various foreign institutions inquiring about her U.S. status. Thereafter, Michelle conducted some online research and learned of all the reporting requirements and foreign income that she missed over the past several years when filing her U.S. tax returns. Since her U.S. assets and income were relatively straightforward and she did not transfer any of her foreign assets to the U.S. (or withdraw any foreign income), she has not considered her foreign assets or income with her U.S. tax filings.
Worldwide Income and Spousal Visa Holder
The United States is one of the few countries that bases income on citizenship and not just residency. In other words, if a person is a US citizen or a lawful permanent resident, then they are subject to US tax on their worldwide income. It does not matter that they are a citizen of another country and/or their income is sourced, in part or in whole, from foreign sources. It also does not matter if they reside overseas — although this may help them exclude some of their income under the foreign earned income exclusion. In addition, if the filer paid foreign taxes, she may receive foreign tax credits against her U.S. income.
Late Filing Penalties May Be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs. Prior Year Non-Compliance
Once a Taxpayer missed the 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 who 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. 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.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.