Introduction
This post is based on my Quora answer to the question: “Do you agree with the policy of not issuing checks to US citizens who jointly file taxes with someone who has an ITIN?“
The Quora answer was rewritten with the generous technical assistance of CPA Olivier Wagner of 1040 Abroad.
Part I – Objective Analysis
This post focuses on the class of individuals entitled to relief. It does not discuss how the relief is administered.
The statute authorizing the relief is found in Section 6428 or Subtitle F (the Procedure And Administration section of the Internal Revenue Code). The following sections specify WHO is entitled to the relief:
§6428. 2020 Recovery rebates for individuals
(d) Eligible individual
For purposes of this section, the term “eligible individual” means any individual other than-
(1) any nonresident alien individual,
…
(g) Identification number requirement
(1) In general
No credit shall be allowed under subsection (a) to an eligible individual who does not include on the return of tax for the taxable year-
(A) such individual’s valid identification number,
(B) in the case of a joint return, the valid identification number of such individual’s spouse, and
(C) in the case of any qualifying child taken into account under subsection (a)(2), the valid identification number of such qualifying child.
(2) Valid identification number
(A) In general
For purposes of paragraph (1), the term “valid identification number” means a social security number (as such term is defined in section 24(h)(7)).
(B) Adoption taxpayer identification number
For purposes of paragraph (1)(C), in the case of a qualifying child who is adopted or placed for adoption, the term “valid identification number” shall include the adoption taxpayer identification number of such child.
In summary this means that:
Those who are entitled to relief include, ANY individual except a nonresident alien, provided that they:
– have a Social Security Number (who is eligible for a Social Security Number?); and
– do NOT file jointly with an individual who does not have a Social Security Number
Who is a “nonresident alien” and therefore NOT an “eligible individual”?
A. The test for individuals – Section 7701(b)
Internal Revenue Code Section 7701(b) defines the circumstances which cause a nonresident alien to become a resident alien. It clarifies who is a “nonresident alien” and therefore NOT subject to US worldwide taxation. This issue is determined by either immigration/citizenship status or physical presence in the United States. It can be complicated and the Section 7701(b) regs are worth reading.
US citizens are eligible. Green Card Holders are statutory residents and are eligible.
Important point: US citizens and Green Card Holders are eligible without regard to whether they live in the United States. (The United States will be sending relief funds to other countries.)
Note that Green Card Holders and US citizens will have a Social Security number.
Individuals who meet the substantial presence test cease to be “nonresident aliens” and become “resident aliens”. In simple terms, because they spend too much time in the United States they are taxed on their worldwide income. Some people who meet the substantial presence test will have a Social Security Number (those who are in the United States under a work visa). Others who meet the substantial presence test will NOT have a Social Security Number (those who do NOT have a work visa).
Important point: Many individuals who meet the substantial presence test and are subject to US worldwide taxation will not receive the payment. This includes nonresident aliens who work in the United States, pay taxes to the United States and even pay Social Security taxes to the United States! For an excellent article describing this see Francine Lipman’s The “ILLEGAL” Tax. They live and work in the United States, but are not entitled to benefits.
Those individuals who are employed in the United States without having an appropriate visa ARE presumptively subject to Social Security taxes even if they are not able to get a Social Security number. As stated by the IRS:
“Wages paid to nonresident aliens employed within the United States by an American or foreign employer, in general, are subject to Social Security/Medicare taxes for services performed by them within the United States, with certain exceptions based on their nonimmigrant status.”
B. Alien spouses electing to file jointly with a US citizen spouse – the Section 6013(g) election
The 6013(g) election and Americans Abroad:
Most US citizens living outside the United States are reluctant (and understandably so) to bring their nonresident alien spouse into the U.S. tax system. As a result, the US citizen is likely to use the “married filing separately” category which is generally punitive. As a general principle, the incentive to use the “married filing separately” category is actually a further tax on a US citizen living abroad. A US citizen using the “married filing separately” category, is paying a “stealth tax” for being married to a nonresident alien.
For a general analysis of how the Internal Revenue Code discriminates against US citizens who marry non-citizens see:
There are some Americans abroad who do file jointly with the Nonresident alien spouse. Unless the NRA spouse has a Social Security number, the US citizen spouse will be denied relief.
The 6013(g) election and the Homeland American:
For Americans abroad, I would generally not recommend that this election be used. For Homeland Americans, where both spouses live in the United States (and are both subject to US worldwide taxation), there are often incentives to file jointly.
That said, for both Americans abroad and for Homeland Americans, Section 6013(g) allows for the nonresident alien spouse to file jointly with a US citizen spouse and therefore to be treated as a “resident alien”. The IRS states that:
“If your spouse is a nonresident alien and you file a joint or separate return, your spouse must have either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). To get an SSN for your spouse, apply at a social security office or U.S. consulate. You must complete Form SS-5. You must also provide original or certified copies of documents to verify your spouse’s age, identity, and citizenship. If your spouse is not eligible to get an SSN, he or she can file Form W-7 with the IRS to apply for an ITIN. Refer to Taxpayer Identification Numbers (TIN) for more information.”
Important Point: A US citizen who files jointly with a nonresident alien spouse (who does not have a Social Security Number) is not entitled to relief.
For interesting commentary on disentitling US citizens who file with somebody with an ITIN from relief, see the following twitter thread:
More than 1 million U.S. citizens won't get stimulus checks because they are married to immigrants who don’t have Social Security numbers. https://t.co/EYoV5akkzj
— Los Angeles Times (@latimes) April 21, 2020
Who is entitled to a Social Security Number and who is NOT entitled to a Social Security Number?
“Unless you are a noncitizen who wants to work in the United States, you probably don’t need a Social Security number. Generally, only noncitizens authorized to work in the United States by the Department of Homeland Security (DHS) can get a Social Security number. Social Security numbers are used to report a person’s wages to the government and to determine a person’s eligibility for Social Security benefits. You need a Social Security number to work, collect Social Security benefits, and receive other government services. Lawfully admitted noncitizens can get many benefits and services without a Social Security number. You don’t need a number to get a driver’s license, register for school, get private health insurance, or apply for school lunch programs or subsidized housing.”
https://www.ssa.gov/pubs/EN-05-10096.pdf
Concluding Observations:
The United States COVID-19 relief program:
– sends money outside the United States to be spent in economies outside the United States (via US citizens abroad and Green Card holders); and
– refuses to provide relief to individuals who live in the United States, work in the United States and are subject to US worldwide taxation and Social Security taxes.
Hmmmmm ….
Well, that’s the flip side of citizenship-based taxation.
Part II – Commentary – As goes taxation, so goes civilization
At first blush the denial of benefits to nonresident aliens would appear to exclude individuals who do not live and work in the United States. After all, the purpose of the benefits is to assist individuals in the United States economy. The reality is that the strange US rules of citizenship taxation and making ALL Green Card Holders US tax residents, leads to a situation where relief intended for the US economy is being sent abroad to other countries. Perversely, the program denies benefits who clearly spend time in the United States, are taxed by the United States on their worldwide income and pay US Social Security taxes.
Furthermore, Green Card Holders and citizens have Social Security Numbers. But, there are others who work in the United States, pay taxes to the United States (based on the substantial presence test) and do NOT have a Social Security (and have ITINs). They will be denied relief because they don’t have a Social Security Number and file with ITINs.
Disentitling ANY individual with an ITIN is grossly unfair to the large number of hard working US residents who (largely because of their immigration status) are not eligible for a Social Security Number. Some people call them illegals. Some call them undocumented aliens. But, the fact is that they do work in the USA and pay US taxes. This is very unfair. But, the unfairness gets even worse.
The United States also denies a US citizen relief simply because he/she filed jointly with a person who (because of immigration status) did not have a Social Security Number. This is very vindictive. It’s bad enough to deny benefits to somebody who does not have a Social Security. But, the United States is denying relief to individuals that would be entitled to relief, but for the fact that they filed jointly with a person without a Social Security number. Incredibly, the United States is punishing a US citizen living in France, who filed jointly with a non-US citizen spouse, for the sole reason that the spouse doesn’t have a Social Security Number. I wouldn’t have believed this kind of deliberate injustice was likely. That said, it appears that my assumption of the presumptive justice of America was misguided.
In practical terms, Congress is deliberately punishing US citizens who do not marry other US citizens. Sad, but true.
The biggest mistake of all …
Of course what is the biggest mistake is attempting to administer this relief through the US tax system – a system that is so complicated, with so many unintended consequences, that many people no longer understand (1) what is required of them and (2) what they can expect.
The history of America will explain how it was undone by a tax system that is so complex and unfair that nobody can really be in compliance.
Have a question? Your comments are welcome! John Richardson
The Reality of U.S. Citizenship Abroad
My name is John Richardson. I am a Toronto based lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:
“What’s said in my office, stays in my office.”
The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.
FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.
11 comments on “CARES ACT: How U.S. Citizen Taxation Leads To Sending Relief Money To Individuals Outside The United States And Denies Relief Money To Individuals Inside The United States”
The ITIN decision likely has nothing to do with arriving at a logical economic based determination (which your article does) and everything to do with IRS still seething from losing $5,000,000,000 (billion) dollars of fraudulently claimed additional child tax credit refunds, with ITINs the key accessory to that heist (any Spanish, or perhaps Mexican, netflix flick coming out about that) as without ITINs it wouldn’t have been possible for those illegal aliens to claim $1,000 refunds for 17 nieces and nephews.
You make a good point.
The problem here seems to be the denial of the benefit to US citizens who have a SSN (and are otherwise entitled), based on the fact of filing jointly with a spouse with no SSN. Why not just deny the benefit to the individual with the ITIN?
“I wouldn’t have believed this kind of deliberate injustice was likely. ”
Neither would I until I was introduced to the US taxation of citizens abroad, the residents and citizens of other nations. Now I know this kind of unfairness is deliberately punitive, the message is to keep yourself and your money on the plantation, well away from opportunities to avoid US tax and that includes by association with foreigners, particularly a spouse.
The principle of taxation of citizens regardless of residence is rotten to the core, clearly flies in the face of American principles (have the American dream in the USA ruined by tax code and laws of the country you left, anyone?) and in fact now clearly breaches basic human rights.
Marriages are often one of the first victims of this vile US practise, you can just imagine the discussion when the US spouse has to explain to his wife that they spent $500 on filing taxes for the last ten years, invading the British families privacy in the process only for the family to be denied the stimulus payments, but the British spouse remains liable for the taxes, SS number or not!
Of course, she’s likely heartily sick already as hubby has spent a fortune of British family money on US tax compliance, because hubby was refused that great job or promotion, because hubby can’t take part in business, because the best ways of saving and investing are closed to the US citizens for several reasons.
It is not possible for a nation to inflict its tax code on other nations residents and end up with a fair result, particularly not the way the USA does it.
The founding fathers must be rolling in their graves.
Land of the free?
The phrase “Land Of The Free” is nothing more than a slogan today. It was likely a marketing gimmick when it originated.
With respect to the US citizen spouse: As I have written on numerous occasions, the Internal Revenue Code has special punishments for US citizens who marry individuals who are not US citizens. US tax laws are premised on the assumption that marriage to a noncitizen is a form of tax avoidance. These rules punish both the US citizen spouse and the noncitizen spouse.
With respect to the noncitizen spouse: Individuals who are not US citizens, should think very carefully, before assuming the special tax and reporting responsibilities (and in some cases disabilities) caused by marriage to a US citizen. This is particularly important for those who are nonresident aliens.
More on this: https://www.mondaq.com/unitedstates/financing/924388/can-immigrants-receive-recovery-rebates-under-the-cares-act
Suzanne:
Thanks for the link – it’s a great article which focuses on the fact that many individuals legally present in the USA – and deemed resident aliens under the substantial presence test – will be denied relief. This is unfair. Anybody who is a resident alien because of the substantial presence test, is part of the economy and should be entitled to relief. This should include those who have no status under the immigration laws, but are treated as resident aliens under the tax laws. I highly recommend this article by UNLV Law Professor Francine Lipman, on this point.
https://scholars.law.unlv.edu/facpub/785/
Most people have heard of and understand concepts such as racism, sexism, ageism, and classism. These terms denote bigotries that stigmatize people because of some characteristic they possess, such as their race, sex, age or class.
But these are not the only bigotries in the world. There are many more. One that is especially pertinent in this context is that of placism.
Placism (also referred to by other terms, such as “prejudice of place” and “spatial taint”) denotes the prejudices and biases that people as well as institutions hold – and the oppression and injustices that result – in connection with where one or more persons live or where they are from. While many people may not have heard of this form of stigma, it is the subject of numerous studies (Palmer, 2011; Stocker, 2005; Jimerson, 2005; Smith-Morris, 2017; Slater, 2017; Tyler & Slater, 2018; Keene & Padilla, 2010; Wacquant, 2007 and 2014; Garbin & Millington, 2012; Kornberg, 2016; Wacquant, Slater, & Pereira, 2014; Pinkster, Ferier & Hoekstra, 2020).
Placism occurs when the residents – current and also sometimes former – of a certain place are associated with damaging characteristics such as criminality, immorality, laziness, lack of intelligence, littering or filth, disease, drug use, and/or danger of some kind. As a result of their “collective defamation” (Garbin & Millington, 2012: 2079) the residents of the place (again not just current but also in some cases former) face discrimination and unjust treatment – stigmatization – in both private and public settings: socially, academically, professionally, and legally. For example: friends and family refuse to visit, teachers label them as problem students, they are rejected by potential employers, and they are subjected to heightened police scrutiny and other penalizing legal measures.
As Tyler & Slater (2018: 734, 740) explain, stigma of any kind functions as a form of power and is a weapon of domination over populations. It is a “device to procure consent for punitive policies” directed at those without power. Stigmatization is a form of governance that legitimizes the reproduction and entrenchment of inequalities and injustices (Tyler, 2013:8). As Kornberg (2016) continues, the stigmatization of place denies those connected to the place of their rights as citizens and forces them to bear the social costs of their own victimization.
Throughout much of its history the United States has stigmatized those from other places. As far back as 1855 Massachusetts Governor Henry J. Gardner stated:
“During the present decade…nearly four millions of aliens will probably be poured in upon us…nearly four-fifths of the beggary, two-thirds of the pauperism, and more than three-fifths of the crimes spring from our foreign population.”
What we are seeing with the CARES Act and its denial of financial benefits to a certain class of persons – those too closely connected to another place either because they come from another country or married someone who does – is yet another manifestation of placism.
The stigmatization by the United States of those too closely associated with another place enables the country to adopt unjust policies that deny those persons their rights as citizens and as residents. In this case they are forced to bear not just the social but also the financial costs of their own victimization.
Laura – thanks for taking the time to construct this important comment. Your comment ends with:
“The stigmatization by the United States of those too closely associated with another place enables the country to adopt unjust policies that deny those persons their rights as citizens and as residents. In this case they are forced to bear not just the social but also the financial costs of their own victimization.”
This is very true and is demonstrated by the similarities between how the United States imposes taxes on nonresident aliens and how the United States imposes taxes on US citizens living outside the United States. Both of these groups are punished (in different ways) because of what you call “placism”.
Americans abroad: The punishment is that they are subjected to a separate and far more punitive tax system than are Homeland Americans.
Nonresident aliens: Professor Francine Lipman of UNLV has noted (see “The Illegal Tax”) and explained how this group is subjected to more punitive tax rules.
Yet, the American public believes the opposite. The public has been persuaded that each of these groups is composed of individuals who lie, cheat, game the system and somehow evade taxes.
The mentality of Homeland America reminds me President Kennedy’s 1962 speech at Yale, where he said:
“For the great enemy of truth is very often not the lie – deliberate, contrived and dishonest – but the myth – persistent, persuasive and unrealistic. Too often we hold fast to the cliches of our forebears. We subject all facts to a prefabricated set of interpretations. We enjoy the comfort of opinions without the discomfort of thought.”
To add to the above comment:
1. Tax Connections Post describing why/how Americans abroad are subjected to a separate and more punitive tax system: https://www.taxconnections.com/taxblog/the-fatca-is-americans-abroad-are-subjected-to-a-far-more-punitive-tax-system-than-homeland-americans/
2. Professor Lipman article on “the Illegal Tax”: https://scholars.law.unlv.edu/facpub/785/
Re #1. I wonder if it might benefit us to frame it as an increasingly growing administrative burden, as opposed to a tax issue.
The lesson from the Monte Silver Transition Tax lawsuit is that the formula may be to define the issue in terms of another law that may have a tax impact, rather than as an attack on a tax law per se. Monte’s lawsuit was NOT a lawsuit against the transition tax, but rather a lawsuit alleging Treasury’s violations of the procedural requirements mandated by the Regulatory Flexibility Act (and more).
A big part of the CBT apparatus is the impact that it has on people’s lives that don’t include tax per se. The reality is that people are renouncing US citizenship NOT because of the tax, but because of the regulatory requirements that make it basically impossible for Americans to leave the United States and live productive lives.
In the 1967 case of Afroyim, the US Supreme Court made it clear that Congress cannot pass laws that result in the “forcible destruction of citizenship” (which is exactly what the US model of citizenship-based taxation does).
Perhaps a lawsuit based on this principle that CBT may be constitutional, but certain aspects of it may be unconstitutional. If the United States would emulate the form of citizenship-based taxation practised by the African dictatorship of Eritrea, then perhaps CBT would be tolerable.
Comments are closed.