Ten million Americans live outside of the U.S., and many of them are married to a non-American.
The U.S. tax system is based on citizenship, which means that all American citizens, as well as non-U.S. citizen Green Card holders, are required to file a U.S. tax return every year, reporting their worldwide income.
This requirement applies to Americans living outside of the U.S. too, regardless of where their income is generated, whether they also have to file or pay foreign income taxes in their country of residence, or whether the U.S. has signed a tax treaty with their country of residence.
To avoid double taxation, Americans living outside the U.S. can claim one or more exclusions or credits when they file, most often the Foreign Tax Credit or the Foreign Earned Income Exclusion.
How does marrying a non-American affect filing U.S. taxes from abroad, though?
The IRS calls a non-American married to an American who lives outside the U.S. a Non-Resident Alien, or NRA. The most common question asked by Americans marrying an NRA is whether an NRA is automatically also liable to file or pay U.S. taxes, by virtue of their marriage to an American.
The answer is that an American married to an NRA can elect whether their spouse becomes a U.S. taxpayer or not on Form 1040. Before making this election though, it’s important to understand the consequence of both scenarios, and so when it makes more sense to choose one or the other.
Married filing separately vs. jointly
When Americans file Form 1040 from abroad, they can elect to file either ‘married filing separately’, or ‘married filing jointly’.
Electing ‘married filing separately’ keeps their NRA spouse outside of the U.S. tax system, while electing ‘married filing jointly’ brings them into it.
For Americans who will definitely never return to live in the States, and whose NRA spouse doesn’t (and won’t in future) either earn over around $107,000 (the Foreign Earned Income Exclusion maximum, which rises with inflation each year), then married filing separately can be a good option.
Another reason to elect ‘married filing separately ‘ can be to reduce annual reporting costs and hassle, particularly if the NRA spouse has foreign registered investments, bank accounts, pensions, or businesses, or self-employment income.
Some American entrepreneurs and business or asset owners abroad also choose to keep their NRA spouse outside the U.S. tax system so that they can gift them their assets or business ownership to reduce their own U.S. reporting and tax liability.
In many situations, electing to file as ‘married filing separately’ is the easiest and most common solution. However, there are certain situations where making the election to file jointly can be beneficial.
Scenarios when it may be better to elect ‘married filing jointly’ include if the couple would like to live in the U.S. in the future, or for the NRA to begin a path to U.S. citizenship. The most common reason though, particularly if the non-American spouse has little or no income or financial assets, is that electing ‘married filing jointly’ makes it possible to claim more U.S. deductions, tax credits, and benefits. A good example of this was the first Coronavirus Stimulus Check, which wasn’t extended to Americans who elected ‘married filing separately’ with an NRA.
If the American spouse elects ‘married filing jointly’, then they will need to obtain an ITIN (Individual Taxpayer Identification Number) for their spouse.
Every expat’s situation is different, and the majority of Americans living abroad benefit from seeking advice from a U.S. expat tax specialist.
Katelynn Minott is a Partner and Managing CPA at Bright!Tax (brighttax.com), a multi award-winning, global provider of U.S. tax services for Americans who are living abroad.
Bright!Tax is a leading, multi award-winning provider of US tax services for Americans filing US taxes from overseas. We proudly serve thousands of American citizen and Green Card holder clients in over 190 countries. Filing US taxes from abroad is challenging, however our mission is to remove the hassle, and make it a breeze! Every Bright!Tax client is connected to one of our expat-specialist CPAs, who remains available throughout the process. We offer flat fees, unrivalled expertize, and world-class support, to ensure your US taxes are prepared accurately, easily, and to your optimum financial benefit.
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