Married, Foreign Spouse, NRA vs RA - How to file taxes the first year

[MariaR323 199]

Nonresident Alien vs. Resident Alien

You are considered a nonresident alien (NRA) unless you meet one of the two tests described next for a resident alien (RA).

You are a RA of the United States for tax purposes if you meet either the green card test or the substantial presence test. Note: this does not mean you are a RA for the entire tax year. In the first tax year in question, unless you established presence on the first day of the year, you would be considered a dual-status alien; RA and NRA for the time before you established presence in the U.S.

Even if you do not meet either of these tests and are considered a NRA, you may be able to choose to be treated as a U.S. resident for tax purposes. Most people will choose to go this route with their spouse because it reduces tax liability when electing to file a joint return.

You have 3 Options for filing your tax return via mail (you cannot e-File):

1. NRA spouse + Filing Separately

You can file a paper return via mail as Married Filing Separately (MFS) and write "NRA" in the SSN/ITIN field for the NRA spouse. You do not need to report anything for your NRA spouse since you are filing separately. This option allows you to file sooner and then later amend to MFJ. Generally speaking, MFS is the least favorable filing status.

SSN/ITIN not needed.

2. NRA spouse + Filing Separately + Spousal Exemption

You can also file Married Filing Separately (MFS) AND claim an exemption for your NRA spouse ONLY IF the NRA spouse has no U.S. source income. Although MFS is generally the least favorable filing status, this option at least allows you to claim the spousal exemption.

SSN/ITIN is needed.

3. Dual-Status/NRA spouse + Filing Jointly

You can choose to treat your dual-status/NRA spouse as a RA for tax purposes for the entire tax year in question. This option allows you to file a joint return (MFJ) and apply all eligible deductions and credits. You would be required to report BOTH spouse's worldwide income. A special election statement needs to be attached to your return indicating this choice. See the following IRS link for how to write the election statement: http://1.usa.gov/1Sw3S7A

SSN/ITIN is needed.

The question of what choice to make depends on which method produces less tax. Generally speaking, MFJ where foreign income is present (or not), should compute to be the most favorable option. With foreign income present, you can apply the more common foreign earned income (FEI) exclusion or foreign earned income (FEI) tax credit so that you do not pay tax twice on the foreign income. (The 2015 FEI exclusion is up to $100,800.)

Re: ITIN application

You may be able to avoid having to send in the passport for your foreign spouse but please read the requirements for the Identity/Foreign Status documents. You may be able to send in a certified copy of the passport but, again, double check. Also, keep in mind, an ITIN application takes approximately 7 weeks to process PLUS another couple weeks to process the tax return.

See this link for the instructions on the W-7 and ID requirements: http://1.usa.gov/1OZHelw

See this link for general info on the W-7 application process: http://1.usa.gov/1NL3CLj

I hope this helps most of you questioning how to file your first year tax return with a dual-status/nonresident spouse.

~Maria

P.S. Mods, please consider pinning this.

IRC Section 6013g NRA Election for RA.pdf

[MariaR323 199]

Two additional helpful links when reporting foreign income:

IRS Average Currency Exchange Rate: http://1.usa.gov/1SlYV2W

Form 2555, Foreign Earned Income: http://1.usa.gov/20hAPdQ

Edited February 1, 2016 by MariaR323