Taxes

[Tim G 0]

If by filing jointly, your spouse's status goes from Non-resident Alien to Resident Alien, will they then be liable for Back Social Security and Medicare Taxes?

[zyggy 9]

If by filing jointly, your spouse's status goes from Non-resident Alien to Resident Alien, will they then be liable for Back Social Security and Medicare Taxes?

No.. foreign source income is not subject to social security or medicare taxes...

[zyggy 9]

What do you do in this case?

Russian Fiancee Worked in Russia 2006.

Russian Fiancee entered 2006.

Russian Fiancee Married USC 2006.

Russian Wife Didn't work in US 2006.

Russian Wife AOS approved 2007.

No record of earned income given to most workers in Russia.

She has none.

THe crux of the matter is whether or not you wish your alien spouse to be treated as a resident alien or non resident alien for tax purposes. If she has been here for longer than 6 months, she must be treated as a resident alien...

You always have the choice to elect to treat a non-resident alien spouse as a resident alien spouse for tax purposes. If you do so, you should file as married filing joint due to the significant tax bebefits of filing under that status.

If you opt to treat your alien spouse as a resident alien for the tax year 2006, you must report her worldwide income. You do not need to have proof of the amount of worldwide income, you only need to make a good faith effort of reporting it. You can exclude any foreign source income that was earned outside of the US by filing Form 2555 with your tax return. The maximum amount of the exclusion is $84,000 for 2006. The amount of the exclusion is reduced by the ratio of days she was in Russia as a resident there. As long as her foreign source income is below the exclusion amount (which is probably the case in Russia), then her income is subtracted from your Gross Income on Line 22 of the 1040. This means that your AGI would be the same with or without her, but you get the additional personal exemption as well as the higher standard exemption by filing as married filing joint...

[de_sjiem 0]

If by filing jointly, your spouse's status goes from Non-resident Alien to Resident Alien, will they then be liable for Back Social Security and Medicare Taxes?

No.. foreign source income is not subject to social security or medicare taxes...

I do believe his wife worked here on a J-1 visa, and therefore has US based income? Dunno what the answer is though..

[Yodrak 7]

zyggy,

$82,400 for 2006? http://www.irs.gov/instructions/i2555/ch01.html#d0e33

Yodrak

..... Up to $84,000 of foreign source income that was earned outside of the US can be excluded by filing a Form 2555 with your 1040.

Edited January 30, 2007 by Yodrak

[Keigwyn 1]

Here's a question...we got married in May of last year. James didn't start working until just about a week and a half ago (so after 2006 had ended). I assume this mean he doesn't need to worry about any tax things since he started after the 2006 tax year was over and only I do my taxes? Does the income he made Jan - April of 2006 in the UK matter?

Yes...

In your case, it would probably be more advantageous for you to file as married filing joint, report his UK source income and then exclude his UK source income that he made from Jan to April 2006 by filing a Form 2555 with your 1040. He is also eligible for a refund of his taxes that he paid to the UK. FIling as Head of Houehold or Married Filing Seperate should be avoided unless it is more advantageous from a tax situation...

I am in the same situation as Miranda&James. I went to the local tax people who could not help. They spent a week reading all the literature and then called the IRS. As my US income for 2006 was $0 with no w-2 I do not need to file. This way UK income does not come into play.

[Keigwyn 1]

Additionally the UK tax year runs April to April. Therefore James was in the UK for the whole of the UK tax year 2005-2006. It would be unlikely that he would get any tax back on this, unless his taxcode in the uk was incorrect. If he worked after the first monday last April then he can fill in a P85 for the tax year 2006-2007 and get probably all his tax that was paid back.

[zyggy 9]

Here's a question...we got married in May of last year. James didn't start working until just about a week and a half ago (so after 2006 had ended). I assume this mean he doesn't need to worry about any tax things since he started after the 2006 tax year was over and only I do my taxes? Does the income he made Jan - April of 2006 in the UK matter?

Yes...

In your case, it would probably be more advantageous for you to file as married filing joint, report his UK source income and then exclude his UK source income that he made from Jan to April 2006 by filing a Form 2555 with your 1040. He is also eligible for a refund of his taxes that he paid to the UK. FIling as Head of Houehold or Married Filing Seperate should be avoided unless it is more advantageous from a tax situation...

I am in the same situation as Miranda&James. I went to the local tax people who could not help. They spent a week reading all the literature and then called the IRS. As my US income for 2006 was $0 with no w-2 I do not need to file. This way UK income does not come into play.

Yes.. but WHY would you EVER want to... as I gave in an example in another thread the difference in what you're paying to the government between Married FIling Joint and Married FIling Seperate for a gross income of $50,000 is over $2,700.. for Head of Household it's over $1,100...

Why on earth would anyone in their right mind want to fork over extra thousands of dollars to the government just because they don't want to bother filing an extra couple of forms is beyond me...

Here's an idea.. why don't you let me do your taxes for you ( I am an IRS Certified Tax Preparer) and I get to keep the extra money... sound like a good deal?

Edited February 7, 2007 by zyggy

[Keigwyn 1]

Here's a question...we got married in May of last year. James didn't start working until just about a week and a half ago (so after 2006 had ended). I assume this mean he doesn't need to worry about any tax things since he started after the 2006 tax year was over and only I do my taxes? Does the income he made Jan - April of 2006 in the UK matter?

Yes...

In your case, it would probably be more advantageous for you to file as married filing joint, report his UK source income and then exclude his UK source income that he made from Jan to April 2006 by filing a Form 2555 with your 1040. He is also eligible for a refund of his taxes that he paid to the UK. FIling as Head of Houehold or Married Filing Seperate should be avoided unless it is more advantageous from a tax situation...

I am in the same situation as Miranda&James. I went to the local tax people who could not help. They spent a week reading all the literature and then called the IRS. As my US income for 2006 was $0 with no w-2 I do not need to file. This way UK income does not come into play.

Yes.. but WHY would you EVER want to... as I gave in an example in another thread the difference in what you're paying to the government between Married FIling Joint and Married FIling Seperate for a gross income of $50,000 is over $2,700.. for Head of Household it's over $1,100...

Why on earth would anyone in their right mind want to fork over extra thousands of dollars to the government just because they don't want to bother filing an extra couple of forms is beyond me...

Here's an idea.. why don't you let me do your taxes for you ( I am an IRS Certified Tax Preparer) and I get to keep the extra money... sound like a good deal?

My UK income was in excess of $100K for the first 7 months of the year. The pro-rata of 82400 against that would have had me owing a considerable amount...On which I had already paid tax as well. The substantive presence test had me at bang on 183 days, which according to what I read would mean I was a resident and therefore subject to taxation on foreign income.

[zyggy 9]

Here's a question...we got married in May of last year. James didn't start working until just about a week and a half ago (so after 2006 had ended). I assume this mean he doesn't need to worry about any tax things since he started after the 2006 tax year was over and only I do my taxes? Does the income he made Jan - April of 2006 in the UK matter?

Yes...

In your case, it would probably be more advantageous for you to file as married filing joint, report his UK source income and then exclude his UK source income that he made from Jan to April 2006 by filing a Form 2555 with your 1040. He is also eligible for a refund of his taxes that he paid to the UK. FIling as Head of Houehold or Married Filing Seperate should be avoided unless it is more advantageous from a tax situation...

I am in the same situation as Miranda&James. I went to the local tax people who could not help. They spent a week reading all the literature and then called the IRS. As my US income for 2006 was $0 with no w-2 I do not need to file. This way UK income does not come into play.

Yes.. but WHY would you EVER want to... as I gave in an example in another thread the difference in what you're paying to the government between Married FIling Joint and Married FIling Seperate for a gross income of $50,000 is over $2,700.. for Head of Household it's over $1,100...

Why on earth would anyone in their right mind want to fork over extra thousands of dollars to the government just because they don't want to bother filing an extra couple of forms is beyond me...

Here's an idea.. why don't you let me do your taxes for you ( I am an IRS Certified Tax Preparer) and I get to keep the extra money... sound like a good deal?

My UK income was in excess of $100K for the first 7 months of the year. The pro-rata of 82400 against that would have had me owing a considerable amount...On which I had already paid tax as well. The substantive presence test had me at bang on 183 days, which according to what I read would mean I was a resident and therefore subject to taxation on foreign income.

Ok, you're pushing into the territory where it may or may not be more advantageous for you for file as MFS.. However, there is a tax treaty between the UK and the US that prevents double taxation. You will probably have to report it in the IRS, exclude what you can, and then take a foreign tax credit on the rest...

I'm currently working on another case that involves the UK/US Tax Treaty... I will research this further and get back to you..

Edited February 8, 2007 by zyggy

[zyggy 9]

OK.. I looked up some stuff in the UK/US Tax Treaty and this is what I found

ARTICLE 4

Residence

1. Except as provided in paragraphs 2 and 3 of this Article, the term “resident of a

Contracting State” means, for the purposes of this Convention, any person who, under the laws

of that State, is liable to tax therein by reason of his domicile, residence, citizenship, place of

management, place of incorporation, or any other criterion of a similar nature. This term,

however, does not include any person who is liable to tax in that State in respect only of income

from sources in that State or of profits attributable to a permanent establishment in that State.

2. An individual who is a United States citizen or an alien admitted to the United States

for permanent residence (a “green card” holder) is a resident of the United States only if the

individual has a substantial presence, permanent home or habitual abode in the United States

and if that individual is not a resident of a State other than the United Kingdom for the purposes

of a double taxation convention between that State and the United Kingdom.

3. The term “resident of a Contracting State” includes:

a) a pension scheme;

B) a plan, scheme, fund, trust, company or other arrangement established in a

Contracting State that is operated exclusively to administer or provide employee

benefits and that, by reason of its nature as such, is generally exempt from income

taxation in that State;

c) an organization that is established exclusively for religious, charitable,

scientific, artistic, cultural, or educational purposes and that is a resident of a

Contracting State according to its laws, notwithstanding that all or part of its income or

gains may be exempt from tax under the domestic law of that State; and

d) a qualified governmental entity that is, is a part of, or is established in, that

State.

4. Where by reason of the provisions of paragraph 1 of this Article, an individual is a

resident of both Contracting States, then his status shall be determined as follows:

a) he shall be deemed to be a resident only of the State in which he has a

permanent home available to him; if he has a permanent home available to him in both

States, he shall be deemed to be a resident only of the State with which his personal and

economic relations are closer (centre of vital interests);

B) if the State in which he has his centre of vital interests cannot be determined,

or if he does not have a permanent home available to him in either State, he shall be

deemed to be a resident only of the State in which he has an habitual abode;

c) if he has an habitual abode in both States or in neither of them, he shall be

deemed to be a resident only of the State of which he is a national;

d) if he is a national of both States or of neither of them, the competent

authorities of the Contracting States shall endeavour to settle the question by mutual

agreement.

5. Where by reason of the provisions of paragraph 1 of this Article a person other than

an individual is a resident of both Contracting States, the competent authorities of the

Contracting States shall endeavour to determine by mutual agreement the mode of application

of this Convention to that person. If the competent authorities do not reach such an agreement,

that person shall not be entitled to claim any benefit provided by this Convention, except those

8

provided by paragraph 4 of Article 24 (Relief from Double Taxation), Article 25 (Nondiscrimination)

and Article 26 (Mutual Agreement Procedure).

Looks like due to your time in the US, you would be considered a US Resident for taxation purposes...

ARTICLE 14

Income from Employment

1. Subject to the provisions of Articles 15 (Directors’ Fees), 17 (Pensions, Social

Security, Annuities, Alimony, and Child Support) and 19 (Government Service) of this

Convention, salaries, wages, and other similar remuneration derived by a resident of a

Contracting State in respect of an employment shall be taxable only in that State unless the

employment is exercised in the other Contracting State. If the employment is so exercised,

such remuneration as is derived therefrom may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1 of this Article, remuneration derived

by a resident of a Contracting State in respect of an employment exercised in the other

Contracting State shall be taxable only in the first-mentioned State if:

a) the recipient is present in the other State for a period or periods not exceeding

in the aggregate 183 days in any twelve-month period commencing or ending in the

taxable year or year of assessment concerned;

B) the remuneration is paid by, or on behalf of, an employer who is not a

resident of the other State; and

c) the remuneration is not borne by a permanent establishment which the

employer has in the other State.

It seems like you qualify in the above section and therefore your income is primarily subject to Taxation in the UK.

Article 24

Relief from Double Taxation

1. In accordance with the provisions and subject to the limitations of the law of the

United States (as it may be amended from time to time without changing the general principle

hereof), the United States shall allow to a resident or citizen of the United States as a credit

against the United States tax on income

a) the income tax paid or accrued to the United Kingdom by or on behalf of

such citizen or resident

But you can take a foreign tax credit for all of the US that you owe...

[Keigwyn 1]

Thanks for that Zyggy lots of research there! I'll say oe thing, year two here will be a breeze in comparison!

[Adam M 0]

... but paid tax at 40% in the UK. To get a tax burden in the US as well with not having worked for 5 months would be financially crippling.

You do know you're entitled to have the tax for the year you leave the UK refunded, right? After you've left the UK, fill out a form, send it to your UK tax office and they send you back a cheque!

[mthornto88 10]

THe crux of the matter is whether or not you wish your alien spouse to be treated as a resident alien or non resident alien for tax purposes. If she has been here for longer than 6 months, she must be treated as a resident alien...

You always have the choice to elect to treat a non-resident alien spouse as a resident alien spouse for tax purposes. If you do so, you should file as married filing joint due to the significant tax bebefits of filing under that status.

If you opt to treat your alien spouse as a resident alien for the tax year 2006, you must report her worldwide income. You do not need to have proof of the amount of worldwide income, you only need to make a good faith effort of reporting it. You can exclude any foreign source income that was earned outside of the US by filing Form 2555 with your tax return. The maximum amount of the exclusion is $84,000 for 2006. The amount of the exclusion is reduced by the ratio of days she was in Russia as a resident there. As long as her foreign source income is below the exclusion amount (which is probably the case in Russia), then her income is subtracted from your Gross Income on Line 22 of the 1040. This means that your AGI would be the same with or without her, but you get the additional personal exemption as well as the higher standard exemption by filing as married filing joint...

Hi Zggy, I have been reading posts in this forum on taxes and I am unsure why I need to report my wife's foreign income. Here is my situation. My wife and I got married last July 14 2006. She is from Panama. She came into the country on May 17 2006. She does not have a SSN. We are doing the immigration process now. I understand the whole W-7 form for an ITN. I will file her as a resident alien. She meets the 183 days requirement. I plan on filing Married filing Jointly. But I don't understand why I need report her foreign income. There is no tax treaty between the US and Panama. Her income last year would have been $6,120. Panama does not collect taxes like the US. So can you explain to me why I would want to report her income on our tax return?

Thanks,

Mike

[mthornto88 10]

THe crux of the matter is whether or not you wish your alien spouse to be treated as a resident alien or non resident alien for tax purposes. If she has been here for longer than 6 months, she must be treated as a resident alien...

You always have the choice to elect to treat a non-resident alien spouse as a resident alien spouse for tax purposes. If you do so, you should file as married filing joint due to the significant tax bebefits of filing under that status.

If you opt to treat your alien spouse as a resident alien for the tax year 2006, you must report her worldwide income. You do not need to have proof of the amount of worldwide income, you only need to make a good faith effort of reporting it. You can exclude any foreign source income that was earned outside of the US by filing Form 2555 with your tax return. The maximum amount of the exclusion is $84,000 for 2006. The amount of the exclusion is reduced by the ratio of days she was in Russia as a resident there. As long as her foreign source income is below the exclusion amount (which is probably the case in Russia), then her income is subtracted from your Gross Income on Line 22 of the 1040. This means that your AGI would be the same with or without her, but you get the additional personal exemption as well as the higher standard exemption by filing as married filing joint...

Hi Zggy, I have been reading posts in this forum on taxes and I am unsure why I need to report my wife's foreign income. Here is my situation. My wife and I got married last July 14 2006. She is from Panama. She came into the country on May 17 2006. She does not have a SSN. We are doing the immigration process now. I understand the whole W-7 form for an ITN. I will file her as a resident alien. She meets the 183 days requirement. I plan on filing Married filing Jointly. But I don't understand why I need report her foreign income. There is no tax treaty between the US and Panama. Her income last year would have been $6,120. Panama does not collect taxes like the US. So can you explain to me why I would want to report her income on our tax return?

Thanks,

Mike

No one can give me advice on my question?