Expat tax question: How to be eligible for MFJ with non-resident spouse?

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market timer
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Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by market timer » Mon Feb 12, 2018 7:29 pm

Based on the US tax reforms, I'd like to be able to file MFJ with my wife, who is a non-resident alien. Currently, I file as HoH. However, we revoked the option that she would be treated as a resident for tax purposes last year. This was largely motivated by paperwork reduction, but now this decision is costing me tens of thousands of dollars per year.

As I understand, we could file as MFJ again if she moved to the US. Are there any other ways we could file as MFJ? For example, could she spend enough time per year in the US to qualify as a resident for tax purposes? What if we purchased a house together in the US? What if my family's US business paid her for part-time work? What if we bought a commercial property?

Looking for creative ideas to make my wife eligible to file as a resident in order to file as MFJ.

csm
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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by csm » Mon Feb 12, 2018 8:22 pm

Firstly, you are not eligible to file as Head of Household if you are married. HoH is only for unmarried individuals who are responsible for dependents. Your options for filing status are either Married filing separately, or Married filing jointly. No other options if you are legally married, regardless of the nationality or residency status of your spouse.

If your wife is a non-resident alien and you live abroad, you can usually declare that you want her treated as a resident alien for tax purposes, even without living in the U.S., but then you must declare her worldwide income, and can file MFJ. However, I do not know how this plays out if you have previously revoked the option.

You would be prudent to contact a CPA who is familiar with the rules about non-resident spouses. You should not need a creative idea to be eligible for her to be treated as a resident for tax purposes, but again, she would have to declare worldwide income and you may have some additional steps if you had already reversed a previous decision for her to be treated as a resident alien.

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market timer
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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by market timer » Mon Feb 12, 2018 8:35 pm

csm wrote:
Mon Feb 12, 2018 8:22 pm
Firstly, you are not eligible to file as Head of Household if you are married.
You can file as HoH with a non-resident alien spouse. I paid $7400 to a CPA over a couple years to learn all about this. Getting tax advice is not cheap.
If your wife is a non-resident alien and you live abroad, you can usually declare that you want her treated as a resident alien for tax purposes, even without living in the U.S., but then you must declare her worldwide income, and can file MFJ. However, I do not know how this plays out if you have previously revoked the option.
Yes, that's the crux of my question. Essentially, what does it take to be considered a resident? The usual method is not available because I revoked that option.
You would be prudent to contact a CPA who is familiar with the rules about non-resident spouses. You should not need a creative idea to be eligible for her to be treated as a resident for tax purposes, but again, she would have to declare worldwide income and you may have some additional steps if you had already reversed a previous decision for her to be treated as a resident alien.
Would prefer to get pointed in the right direction, but am willing to go to a CPA if that's my only option. It is a huge hassle to deal with all my wife's paperwork, plus she considers it a privacy violation, but for tens of thousands per year, it is now at a price point where I'd do it.
Last edited by market timer on Mon Feb 12, 2018 8:38 pm, edited 1 time in total.

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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by bpp » Mon Feb 12, 2018 8:37 pm

csm wrote:
Mon Feb 12, 2018 8:22 pm
Firstly, you are not eligible to file as Head of Household if you are married. HoH is only for unmarried individuals who are responsible for dependents. Your options for filing status are either Married filing separately, or Married filing jointly. No other options if you are legally married, regardless of the nationality or residency status of your spouse.
This is incorrect. See Pub. 54:
"If you do not choose to treat your nonresident alien spouse as a U.S. resident, you may be able to use head of household filing status. To use this status, you must pay more than half the cost of maintaining a household for certain dependents or relatives other than your nonresident alien spouse. For more information, see Publication 501."

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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by bpp » Mon Feb 12, 2018 8:45 pm

market timer wrote:
Mon Feb 12, 2018 7:29 pm
As I understand, we could file as MFJ again if she moved to the US. Are there any other ways we could file as MFJ? For example, could she spend enough time per year in the US to qualify as a resident for tax purposes? What if we purchased a house together in the US? What if my family's US business paid her for part-time work? What if we bought a commercial property?

Looking for creative ideas to make my wife eligible to file as a resident in order to file as MFJ.
My guess is that merely buying a house in the US would not be enough to qualify as a resident, nor would any business arrangement work. Actual physical presence would be needed, I think. But I'm not a tax lawyer.

I wonder if you could go back and file an amended return for last year, cancelling the revocation of MFJ? No idea if this would actually fly, just an idea to run by an expert.

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in_reality
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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by in_reality » Tue Feb 13, 2018 3:31 am

bpp wrote:
Mon Feb 12, 2018 8:45 pm
market timer wrote:
Mon Feb 12, 2018 7:29 pm
As I understand, we could file as MFJ again if she moved to the US. Are there any other ways we could file as MFJ? For example, could she spend enough time per year in the US to qualify as a resident for tax purposes? What if we purchased a house together in the US? What if my family's US business paid her for part-time work? What if we bought a commercial property?

Looking for creative ideas to make my wife eligible to file as a resident in order to file as MFJ.
My guess is that merely buying a house in the US would not be enough to qualify as a resident, nor would any business arrangement work. Actual physical presence would be needed, I think. But I'm not a tax lawyer.

I wonder if you could go back and file an amended return for last year, cancelling the revocation of MFJ? No idea if this would actually fly, just an idea to run by an expert.
I think she must spend enough time there to be a tax resident. If she was paid by the family business, that wouldn't make it US income for her anyway. She's still a NRA and the income is sourced to "Where services performed".

So maybe an amended return is the only way other than physical presence (which would be required every year).
Revocation by either spouse
Death of either spouse
Legal Separation
Inadequate records

CAUTION! If the choice is ended for any of the reasons listed above, neither spouse can make a choice in any later tax year..
I don't know if you can amend to have the revocation reversed, but there is a time limit to do the opposite (i.e. amend to take the MFJ election):
You generally must file the amended joint return within 3 years from the date you filed your original U.S. income tax return or 2 years from the date you paid your income tax for that year, whichever is later.
I wonder if a TurboTax CPA would know.

A green card would do it, but it's problematic being outside the US for very long unless you get a re-entry permit. Even the re-entry permit is problematic because it's a year or two and to renew you may suddenly be required for fingerprinting at the office nearest your listed US address. They are not flexible about dates either. My wife gave hers up even though we were willing to pay for the re-entry permit because she couldn't suddenly leave and miss work to get the fingerprinting. Maybe it's changed but that was 5 years ago ... and a fortune for an immigration lawyer to try and get around it.

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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by HueyLD » Tue Feb 13, 2018 6:57 am

market timer wrote:
Mon Feb 12, 2018 7:29 pm
Based on the US tax reforms, I'd like to be able to file MFJ with my wife, who is a non-resident alien. Currently, I file as HoH. However, we revoked the option that she would be treated as a resident for tax purposes last year. This was largely motivated by paperwork reduction, but now this decision is costing me tens of thousands of dollars per year.

As I understand, we could file as MFJ again if she moved to the US. Are there any other ways we could file as MFJ? For example, could she spend enough time per year in the US to qualify as a resident for tax purposes? What if we purchased a house together in the US? What if my family's US business paid her for part-time work? What if we bought a commercial property?

Looking for creative ideas to make my wife eligible to file as a resident in order to file as MFJ.
The IRS has a guide for you.
https://www.irs.gov/individuals/interna ... ien-spouse
Election to File Joint Return

If you make this choice, the following rules apply:

You and your spouse are treated, for federal income tax purposes, as residents for all tax years that the choice is in effect. However, for Social Security and Medicare tax withholding purposes, the nonresident alien may still be treated as a nonresident alien. Refer to Aliens Employed in the U.S. – Social Security Taxes.

You must file a joint income tax return for the year you make the choice (but you and your spouse can file joint or separate returns in later years).

Each spouse must report his or her entire worldwide income for the year you make the choice and for all later years, unless the choice is ended or suspended.

Generally, neither you nor your spouse can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect. However, the exception to the saving clause of a particular tax treaty might allow a resident alien to claim a tax treaty benefit on certain specified income.

Example:

Pat Smith has been a U.S. citizen for many years. She is married to Norman, a nonresident alien. Pat and Norman make the choice to treat Norman as a resident alien by attaching a statement to their joint return. Pat and Norman must report their worldwide income for the year they make the choice and for all later years unless, the choice is ended or suspended. Although Pat and Norman must file a joint return for the year they make the choice, so long as one spouse is a U.S. citizen or resident, they can file either joint or separate returns for later years.

Election to File Joint Return

If you make this choice, the following rules apply:

You and your spouse are treated, for federal income tax purposes, as residents for all tax years that the choice is in effect. However, for Social Security and Medicare tax withholding purposes, the nonresident alien may still be treated as a nonresident alien. Refer to Aliens Employed in the U.S. – Social Security Taxes.

You must file a joint income tax return for the year you make the choice (but you and your spouse can file joint or separate returns in later years).

Each spouse must report his or her entire worldwide income for the year you make the choice and for all later years, unless the choice is ended or suspended.

Generally, neither you nor your spouse can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect. However, the exception to the saving clause of a particular tax treaty might allow a resident alien to claim a tax treaty benefit on certain specified income.

Example:

Pat Smith has been a U.S. citizen for many years. She is married to Norman, a nonresident alien. Pat and Norman make the choice to treat Norman as a resident alien by attaching a statement to their joint return. Pat and Norman must report their worldwide income for the year they make the choice and for all later years unless, the choice is ended or suspended. Although Pat and Norman must file a joint return for the year they make the choice, so long as one spouse is a U.S. citizen or resident, they can file either joint or separate returns for later years.

CAUTION! If you file a joint return under this provision, the special instructions and restrictions for dual-status taxpayers do not apply to you.

Note: If you do not choose to treat your nonresident spouse as a U.S. resident, you may be able to use head of household filing status. To use this status, you must pay more than half the cost of maintaining a household for certain dependents or relatives other than your nonresident alien spouse. For more information, refer to Head of Household and Publication 501, Exemptions, Standard Deduction, and Filing Information.

How to Make the Choice

Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information:

A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax year

The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

Amended Return

You generally make this choice when you file your joint return. However, you can also make the choice by filing a joint amended return on Form 1040X, Amended U.S. Individual Income Tax Return within 3 years from the date you filed your original U.S. income tax return or 2 years from the date you paid your income tax for that year, whichever is later. If you make the choice with an amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice.

Suspending the Choice

The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a US citizen or resident alien at any time during the later tax year.

Example:

Dick Brown was a resident alien on December 31, 2016, and married to Judy, a nonresident alien. They chose to treat Judy as a resident alien and filed a joint 2016 income tax return. Because Dick left the United States on January 10, 2017, and did not return at all during the year, he was a nonresident alien for tax year 2017. Judy remained a nonresident alien for that year. Since neither Dick nor Judy was a resident alien at any time during 2017, their choice to treat Judy as a resident alien is suspended for that year. For 2017, both are treated as nonresident aliens. If Dick becomes a resident alien again in 2018, their choice to treat Judy as a resident alien is no longer suspended and they must file either joint or separate income tax returns reporting their worldwide income for tax year 2018.

halfnine
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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by halfnine » Tue Feb 13, 2018 7:13 am

Are you sure you want to file MFJ? If I remember correctly your spouse has quite a bit of income and assets in SE Asia from family or family related businesses. If you file MFJ all your spouse's worldwide income will become taxable in the US. Due to PFIC rules this will also greatly limit what your NRA spouse can invest in abroad without significant tax consequences of her own.

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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by csm » Tue Feb 13, 2018 9:20 am

bpp wrote:
Mon Feb 12, 2018 8:37 pm
csm wrote:
Mon Feb 12, 2018 8:22 pm
Firstly, you are not eligible to file as Head of Household if you are married. HoH is only for unmarried individuals who are responsible for dependents. Your options for filing status are either Married filing separately, or Married filing jointly. No other options if you are legally married, regardless of the nationality or residency status of your spouse.
This is incorrect. See Pub. 54:
"If you do not choose to treat your nonresident alien spouse as a U.S. resident, you may be able to use head of household filing status. To use this status, you must pay more than half the cost of maintaining a household for certain dependents or relatives other than your nonresident alien spouse. For more information, see Publication 501."
Interesting, thank you. I was unaware of this. I lived abroad for 30 years and had a non-resident alien spouse for many of those years and was always told that a married person must file either MFS or MFJ but could never file HoH because he or she is, in fact, married. I would not have been eligible for HoH anyway since we have no dependents. I filed MFS for years, then we eventually chose to have him treated as a resident for tax purposes to file MFJ (and reported his worldwide income), then he became a permanent resident and now is a U.S. citizen.

OP - if you are able to make the switch and have to report worldwide income of your wife, remember that you can also take the FEIE for some of the income if you/she meet the eligibility requirements.

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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by halfnine » Tue Feb 13, 2018 9:32 am

Not specific to the MFJ issue but more along the ideas of US residency is whether your spouse will qualifty for 50% of your social security benefits and 100% of the benefit if you predecease her. OTOH, I think 5 years of residency within the USA will qualify her. There are other ways to qualify based on citizenship or residency in certain countries but based on your other posts I don't believe either of those conditions are true.

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market timer
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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by market timer » Tue Feb 13, 2018 10:22 am

Thanks, all. Looks like the rules are fairly clear on determining residency status: https://www.irs.gov/individuals/interna ... tax-status

I don't see any options other than green card or physical presence.

I'm going to see about filing an amended return to switch from HoH back to MFJ.
halfnine wrote:
Tue Feb 13, 2018 9:32 am
Not specific to the MFJ issue but more along the ideas of US residency is whether your spouse will qualifty for 50% of your social security benefits and 100% of the benefit if you predecease her. OTOH, I think 5 years of residency within the USA will qualify her. There are other ways to qualify based on citizenship or residency in certain countries but based on your other posts I don't believe either of those conditions are true.
Yes, we plan to return to the US sometime prior to becoming eligible for Social Security.

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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by dodecahedron » Tue Feb 13, 2018 11:06 am

market timer wrote:
Tue Feb 13, 2018 10:22 am
halfnine wrote:
Tue Feb 13, 2018 9:32 am
Not specific to the MFJ issue but more along the ideas of US residency is whether your spouse will qualifty for 50% of your social security benefits and 100% of the benefit if you predecease her. OTOH, I think 5 years of residency within the USA will qualify her. There are other ways to qualify based on citizenship or residency in certain countries but based on your other posts I don't believe either of those conditions are true.
Yes, we plan to return to the US sometime prior to becoming eligible for Social Security.
If the residence requirement were met, your spouse would likely be eligible for SS mother's benefits right now in the event of your disability or early death if she is caring for your child under age 16. So I assume you mean you plan to return to the US sometime prior to becoming eligible for Social Security old age benefits.

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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by halfnine » Tue Feb 13, 2018 12:16 pm

dodecahedron wrote:
Tue Feb 13, 2018 11:06 am
market timer wrote:
Tue Feb 13, 2018 10:22 am
halfnine wrote:
Tue Feb 13, 2018 9:32 am
Not specific to the MFJ issue but more along the ideas of US residency is whether your spouse will qualifty for 50% of your social security benefits and 100% of the benefit if you predecease her. OTOH, I think 5 years of residency within the USA will qualify her. There are other ways to qualify based on citizenship or residency in certain countries but based on your other posts I don't believe either of those conditions are true.
Yes, we plan to return to the US sometime prior to becoming eligible for Social Security.
If the residence requirement were met, your spouse would likely be eligible for SS mother's benefits right now in the event of your disability or early death if she is caring for your child under age 16. So I assume you mean you plan to return to the US sometime prior to becoming eligible for Social Security old age benefits.
OTOH (possibly getting something wrong)

- it is until age 18 (age 19 if in school?)
- each child (US citizen) would be eligible for 75%
- max family benefit of 200%

So, if OP had 3 or more kids it wouldn't much matter. As for us we have 2 children. While we would get 150% instead of a max 200% if isn't worth my spouse pursuing residency and/or citizenship for that last 50% as it would cause more headaches then it is worth. Plus, life insurance can insure this risk as well.

The bigger issue might be OP's spouses ability to enter and live in the US for 5 years in he predeceases her.

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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by dodecahedron » Tue Feb 13, 2018 12:37 pm

halfnine wrote:
Tue Feb 13, 2018 12:16 pm

OTOH (possibly getting something wrong)

- it is until age 18 (age 19 if in school?)
- each child (US citizen) would be eligible for 75%
- max family benefit of 200%

So, if OP had 3 or more kids it wouldn't much matter. As for us we have 2 children. While we would get 150% instead of a max 200% if isn't worth my spouse pursuing residency and/or citizenship for that last 50% as it would cause more headaches then it is worth. Plus, life insurance can insure this risk as well.
Mother's benefits end when youngest child reaches 16 (unless there is a disabled child, in which case mother's benefits can continue past age 16.)

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Re: Expat tax question: How to be eligible for MFJ with non-resident spouse?

Post by halfnine » Tue Feb 13, 2018 12:50 pm

dodecahedron wrote:
Tue Feb 13, 2018 12:37 pm
halfnine wrote:
Tue Feb 13, 2018 12:16 pm

OTOH (possibly getting something wrong)

- it is until age 18 (age 19 if in school?)
- each child (US citizen) would be eligible for 75%
- max family benefit of 200%

So, if OP had 3 or more kids it wouldn't much matter. As for us we have 2 children. While we would get 150% instead of a max 200% if isn't worth my spouse pursuing residency and/or citizenship for that last 50% as it would cause more headaches then it is worth. Plus, life insurance can insure this risk as well.
Mother's benefits end when youngest child reaches 16 (unless there is a disabled child, in which case mother's benefits can continue past age 16.)
Yes, you are correct.

Widow/Widower receive benefits until youngest child is 16. Each unmarried children receive their own benefits until 18/19. With exceptions for disability.

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