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When Can A Non-Resident Spouse Be Treated As A Resident?



As the tax reform debate rages on currently, I do not see much in the proposals changing for US citizens living abroad. As this story unfolds, I think it is a good thing that US citizens/ resident aliens living abroad are not affected. We shall wait and watch. For all the latest news-stay tuned!

As it happens many times for those US citizens who have moved abroad and married someone who is a citizen of their resident country, when times comes to file a tax return, they have to use the “Married Filing Separately” or the “Head of Household” filing status. Both of these may not be as advantageous as the “Married Filing Jointly” filing status tax-wise.

This can also apply for those who have just become US citizens/ residents at the end of the year but the spouse has not yet/ chosen not to become a US resident/ citizen at the same time.

One can get around this by making an election to treat the non-resident/ non-US citizen spouse as a resident/ US citizen, file jointly and perhaps reduce one’s tax burden.

If this election is made, the following rules will apply:

  • For all years the election remains in effect, the couple is treated as residents for federal tax purposes. The election is effective for the entire tax year, both for purposes of the federal tax return & taxes to be withheld from wages.
  • The couple must file a joint tax return for the year/s the election remains in effect.
  • The couple must report their “world-wide income” on their US tax return.
  • Generally, tax treaty benefits cannot be claimed. Details of the savings clause of treaties must be examined in detail.

How is the election to be made:

The election is made by attaching a statement to the joint tax return, signed by both the spouses in the first tax year in which this applies. The statement should have the following information:

1. A declaration that one spouse is a resident alien/ US citizen and the other spouse is a non-resident alien on the last day of the tax year. And that they chose to be both treated as resident aliens/ US citizens for the entire tax year.

2. The name, address and identification number for each spouse.

Other Notable Points:

  • The election can be made on an amended tax return or on an originally filed tax return. If amending a tax return to make such an election, it should be filed with the Internal Revenue Service within 3 years of originally filing or 2 years from the date the tax was paid, whichever is later.
  • The non-resident spouse needs to have a Social Security number or a Tax Identification number in order to be able to make the election.
  • The election will be suspended for any later tax year if one of the couple is not a US citizen or resident alien at any time during a later tax year.
  • The election is ended if it is revoked by either spouse; death of either spouse; the couple get legally separated; or have inadequate records to prove they are married.
  • If one of the spouses is a resident of American Samoa or Puerto Rico, they can be treated as a resident without having to make an election.

Have a question? Contact Manasa Nadig

Your comments are welcome!

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I am Manasa Nadig, enrolled to practice and represent taxpayers with the Internal Revenue Service. I have been in the business of Tax Preparation & Tax Planning since 1999. My firm, MN Tax Solutions, LLC is based in Michigan, USA. Please connect with me on TaxConnections for more information about myself & the services provided by my firm.

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3 thoughts on “When Can A Non-Resident Spouse Be Treated As A Resident?

  1. Avatar Stephen Kish says:

    Ms. Nadig,

    I am very happy that you, from the tax compliance industry, is commenting on the new tax bills, but I am not sure that I understand your point.

    You appear to feel that it is good news that there is nothing in the U.S. House and Senate tax bills that will affect US persons living abroad — but many of us had hoped that the legislation would replace citizenship-based taxation with residence-based taxation, as is the standard in the rest of the world.

    Could you please explain how retention of citizenship-based taxation is good news for US persons abroad, or perhaps for the tax compliance industry?

    Thank you

  2. Avatar Mark Wish says:

    I am sure I read that the proposals included taxing of the retained earnings in Foreign Corporations owned by US Citizens who are Bona Fide residents of that same foreign country. Did I read this incorrectly or is someone wrong on this point?

  3. @Mark Wish

    Thank you for remembering this. See the following post that discusses this very issue:

    https://www.taxconnections.com/taxblog/us-tax-reform-bill-appears-to-confiscate-12-of-retained-earnings-of-certain-canadian-controlled-private-corporations/#.Wg9nUoZOmqA

    There are many who interpret the proposed changes, to include a provision that would lead to the confiscation of a significant portion of the retained earnings of small business corporations, owned by Americans abroad. I wrote the above referenced post and used the example of a U.S./Canada dual citizen living in Canada who owns a small business corporation. By the way, it is very common for Canadians to utilize small business corporations to carry on their businesses.

    This specific provision is found in Sec. 4004 of the Proposed tax bill. The way it would operate (after identifying those who own small Canadian Controlled Private Corporations in Canada) would be to:

    1. Focus on the retained earnings of the corporation since 1986. Note that these earnings were either NOT subject to U.S. taxation at the time or were already included in the income of the shareholder via the subpart F provisions.

    2. Impose a tax of either:

    House Bill: 14% (cash) or 7% (non-cash)

    Senate Bill: 10% (cash) or 5% (non-cash)

    on the retained earnings by including those earning in Subpart F income.

    Understand that for many Canadians these small business corporations contain their retirement savings. So, the bottom line is the the United States proposed to literally confiscate these assets.

    Understand also that Sec. 4004 is part of the section that creates the system of territorial taxation for U.S. corporations. The idea is that the “transition tax” is a way to repatriate the earnings which have not returned to the USA (obviously because of confiscatory taxation). After paying this “transition tax” those U.S. corporations will get the benefit of territorial taxation.

    Understand also that U.S. individual shareholders of Canadian Controlled Private Corporations do NOT get the benefit of “territorial taxation” but (if this is interpreted correctly) are still required to pay this.

    What the USA, in it’s great wisdom is doing, is to:

    1. Retroactively go back and deem income that was NOT taxable at the time to be taxable; and

    2. Use the mechanism of subpart F inclusion (I am not going to dignify this by calling it a tax) to CONFISCATE the asset.

    Understand also that this is one more of a long line of indignities inflicted on Americans abroad that includes:

    – the virtual confiscation of Canadian pensions (via the Sec. 877A Exit Tax rules applied to some who renounce U.S. citizenship) that were earned in Canada while the individual was NOT living in the United States; and

    – the application of the 3.8% Obamacare surtax to distributions of from Canadian RRSPs (the equivalent of U.S. IRAs) and excluding distributions from IRAs.

    I suspect that this will be the “straw that breaks the camel’s back”.

    And “The Band Played On ….”

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