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
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