Save all the money the INS cost you! |
How? File as "Married filing joint return". Your Deduction is UP by $3,600. Your taxes are DOWN by ~$2,000. |
What's the trick? The IRS let's you become a "RESIDENT ALIEN" the day you are married. |
But I'm not a tax expert and what you read below is merely my own take on reading and filing the forms for the last 10+ years. I've only included information based on my own experience, but as you know, your situation will probably be different and the tax system is complicated, so it may not apply exactly like this in your case. Make sure you read all of the relevent publications from the IRS for your case before you decide how to proceed. Or consult a tax accountant.
Filing jointly but excluding your spouse's foreign income can be easy. And just might save you $$$. It is certainly worth investigating. Your alternative to "married filing jointly" is for the US citizen to file separately, with the alien spouse filing as a non-resident (or not at all if gross earnings in the US are less than $2,750).
You can avoid US income taxes by excluding the first $74k of foreign-earned income using the income exclusion (form 2555). This works best if your alien spouse arrived in the US late in the year. If you are a high earner, you may need to also subtract from your US taxes your foreign taxes paid (form 1116). You can always avoid double taxation if your country has a tax treaty with the US. If you are a high earner, or if you have lots of unearned income (capital gains, interest, dividends), be sure to check your state income taxes before you send in your federal ones on this basis. If you hire a tax person, be sure they are expert at foreign stuff - your local guy might not really know.
The foreign spouse also needs to have a Social Security Number or an Individual Taxpayer's Identification Number (ITIN). Note, if you are eligible for a SSN (for example green card holder), then you are not eligible for a ITIN.
First a suggestion: Get from the IRS the packet called "Forms and Instructions for Overseas Filers" (Package 1040-7) which includes a copy of publication 54 "Tax Guide for U.S. Citizens and Resident Aliens Abroad". You might as well also get US Tax Guide for Aliens (publication 519). Of course all the individual forms are on the IRS web page, but the packet makes it easier. You can get the forms from most libraries and post offices or phone 1-800-829-3676. The mail address depends on where you live. I got mine from IRS, P.O. Box 85074, Richmond, Va, 23261-5074.
Preparing your return
| Get the forms. At minimum you need a 1040 (or 1040EZ) and Form 2555 (or 2555EZ). If you both earned abroad, you each need a 2555. (I'm not sure you can use 1040EZ. It says in the instructions that you can't use 1040A. I always used 1040 - it certainly made it easier to follow the instructions.) |
| Fill out form 2555 "Foreign Earned Income" after reading the instructions (or form 2555EZ and instructions) for the alien spouse. This is never a joint form, but you attach his/her individual form to your joint return, the 1040. (and don't worry about "For US Citizens and Resident Aliens Only" - if you go this route you are choosing to treat the immigrant as a Resident Alien. And the IRS - unlike the INS - lets you do this immediately if you are married to a US citizen). |
| Do include his/her foreign income (converted into US$) on line 7 of 1040 (added to yours). Since (s)he won't have W-2, write "see statement 1" on the dotted line before line 7. |
| Prepare a "statement 1" listing his/her foreign income for CY 1999. And show how you got to your total family income. A simple table is fine. |
| On line 21, write in the space "form 2555". Then put the result of form 2555 - which probably will be all his income - in ( ) on the line. |
| Now on line 22 "Total Income" you take 21 away from line 7. The cool part is their foreign income is gone and you are still on the front of the form. All the deductions, exemptions etc.are still to come! Their income is not part of your "Total Income". |
| If it's the first time you've done this, attach a statement (perhaps "statement 2") per instructions in Publication 519 saying that you want the alien spouse to be treated as a resident alien for tax purposes. Both sign it. |
| Oh, and if you live outside the US and want the 2 month automatic extension to file (who doesn't?), it's good practice to attach a "statement 3" saying this. Lot's of simple statement, nothing to fear! |
IMHO, it's better to declare foreign income in this way. Once IRS accept the return, it's covered, and you never need to worry about it magically appearing in some audit years later. With foreign income there often is a bit of judgement. I always erred on the side of adding extra stuff on line 7, since I knew that I could exclude it on line 21.
Anyway, I predict filing this way will save you money. Good luck.
Useful Links
The Inland Revenue ServiceUS Tax Guide for Aliens (publication 519)
The IRS guide for US citizens and resident aliens abroad (Publication 54)
Back to the I-130 London Page
Q&A from the IRS Web Page
I am a U.S. citizen married to a nonresident alien who has no income from U.S. sources. Can I claim an exemption for my spouse on my U.S. tax return?Yes. You can claim an exemption for your nonresident alien spouse on your tax return if your spouse has no income from sources within the United States and is not the dependent of another U.S. taxpayer. You must use the married filing separately column in the Tax Table or the Tax Rate Schedule for married individuals filing a separate return, unless you qualify as a head of household. (Also see Question 12 under General Tax Questions, later. ) A U.S. citizen or resident married to a nonresident alien also can choose to treat the nonresident alien as a U.S. resident for all federal income tax purposes. This allows you to file a joint return, but also subjects the alien's worldwide income to U.S. income tax.
It tells you that you can do this in Publication 519, and you need to make a signed declaration for the first year that the non-resident wants to be treated as a resident.
FAQ not on IRS Web Page
Where else does it say I can magically be a resident alien and use 2555 even though the INS doesn't (yet!) consider me a resident alien?
In publication 54, section 1, page 5, column 3, there is a clear explanation. But does this refer to Form 2555? Yes. In section 4, page 11 under the heading "Requirements" it says, "If you are a nonresident alien married to a U.S. citizen or resident alien, and both you and your spouse choose to treat you as a resident, you are a resident alien for tax purposes." This section is specifically for who meets the requirements for Form 2555.
What exchange rate do I use?
Two choices. The hard way is to swap each amount you receive into dollars at the prevailing rate on the day you receive it. The easy way is to phone the IRS office in the counry concerned and ask them for the yearly average rate. Then use that for everything. According to the message on the IRS London branch answering machine, "...the unofficial exchange rate for 1999 is 1GBP = $1.62".
I rented my house abroad. Can I exclude the income via the 2555?
No. Rental income is "unearned". You'll need to use the normal ways to reduce rental income, and perhaps use the 1116 to deduct from your US taxes any foreign tax paid. If you are a rich slumlord, you may not want to become a resident alien until you have to. Or drop the rent and fix the damp, disgusting flea pit you own. Up to you.
What's this tax treaty stuff? My country isn't on the list?
By my read of the regs, since you are married to a USC, you don't need to worry, you get this exclusion. It seems to be for resident aliens not married to USC that it matters. I suggest you carefully read the 2555 instructions.
What if I need to file now, but I don't have my Social Security Number yet? Can I use an ITIN?
If you are eligible for a SSN, then you need to wait for it. You can file an extension for time to file. By the way, if you are not a resident of the USA on tax day (April 15) then you get an automatic extension until June 15. Attach statement 2 stating this fact.