Foreign Wages and End of Year Marriage

[Very_44_EP 21]

This is a bit hypothetical as it deals with 2021 taxes and an as yet ungranted Visa, but I wonder if anyone has any insight.  I expect/hope to have my fiance in the country in late-2021; she will have been living and working most of the year in her native country.  Does this means that I cannot file MFJ, as this would expose her foreign earnings to US taxation, and would have to file MFS.  Is this correct?  At first I thought you could file MFJ if married before the end of the year, but did not consider the foreign wages/taxes issue.  I assumed that the foreign income/taxes could not be deducted or credited under the circumstance, but after reviewing this forum, maybe it is possible for her to elect to be taxed as a Resident Alien and file the 2555 to exclude her foreign income?  And thus get the lower MFJ rates and higher deduction.  This seems like double dipping (excluding the income for taxation but claiming the advantages), but maybe this is the right way to go?

[JeanneAdil 6,583]

If married in 2021, you can file either way (to your advantage) just follow the IRS rules for ITIN (form W7 with supporting documents)  as she will not yet (probably ) have the SS # / if she has SS# , not an issue 

Marry and use I94 ASAP to apply for SS# within the first 90 days

 

but for 2020 the exempt part is $107,600 (form 2555)  if her country is listed as one of the ones with a tax treaty with the US

 

https://www.irs.gov/individuals/international-taxpayers/nonresident-alien-spouse 

 

Treaty countries:

 

https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z

[Ayrton 965]

3 hours ago, JeanneAdil said:

But for 2020 the exempt part is $107,600 (form 2555)  if her country is listed as one of the ones with a tax treaty with the US

This information is incorrect. You don't need a tax treaty to exclude foreign income. US doesn't have a tax treaty with Brazil and I was able to exempt my Brazilian income in 2019 just fine.

 

You have to meet either the bonafide residence test or the physical presence test, and for the physical presence test you don't need a tax treaty.

 

"Part III

Physical Presence Test

See COVID-19 Emergency Relief,

earlier, before determining

whether you meet the physical

presence test.

To meet this test, you must be a U.S.

citizen or resident alien who is physically

present in a foreign country, or countries,

for at least 330 full days during any period

of 12 months in a row. A full day means

the 24-hour period that starts at midnight.

To figure 330 full days, add all separate

periods you were present in a foreign

country during the 12-month period shown

on line 16. The 330 full days can be

interrupted by periods when you are

traveling over international waters or are

otherwise not in a foreign country. See

Pub. 54 for more information and

examples.

Note. A nonresident alien who, with a

U.S. citizen or U.S. resident alien spouse,

chooses to be taxed as a resident of the

United States can qualify under this test if

the time requirements are met. See Pub.

54 for details on how to make this choice.

Line 16. The 12-month period on which

the physical presence test is based must

include 366 days, part of which must be in

2020. The dates may begin or end in a

calendar year other than 2020."

Edited May 15, 2021 by Ayrton

[Ayrton 965]

4 hours ago, Very_44_EP said:

This is a bit hypothetical as it deals with 2021 taxes and an as yet ungranted Visa, but I wonder if anyone has any insight.  I expect/hope to have my fiance in the country in late-2021; she will have been living and working most of the year in her native country.  Does this means that I cannot file MFJ, as this would expose her foreign earnings to US taxation, and would have to file MFS.  Is this correct?  At first I thought you could file MFJ if married before the end of the year, but did not consider the foreign wages/taxes issue.  I assumed that the foreign income/taxes could not be deducted or credited under the circumstance, but after reviewing this forum, maybe it is possible for her to elect to be taxed as a Resident Alien and file the 2555 to exclude her foreign income?  And thus get the lower MFJ rates and higher deduction.  This seems like double dipping (excluding the income for taxation but claiming the advantages), but maybe this is the right way to go?

No problem with that. You will both write a letter electing her to be treated as a resident alien for tax purposes, and use form 2555 to exempt her income. And like I said above, her country doesn't need to have a tax treaty with the US because she meets the physical presence test.

[Wuozopo 4,293]

4 hours ago, Very_44_EP said:

Does this means that I cannot file MFJ, as this would expose her foreign earnings to US taxation, and would have to file MFS.  Is this correct? 

A misconception is her earnings would be taxed by the US. If filing jointly, all income of both spouses has to be reported, but not necessarily taxed. The tax treaty between the US and Mexico prevents taxation by both countries on the same earnings.
So the time physically in Mexico can qualify for the Foreign Earned Income Exclusion on those earnings (Form 2555), meaning the US tax those excluded earnings would have generated is subtracted out. 

Or if she already paid taxes to Mexico, she can take a Foreign Tax Credit on a US joint return for whatever she paid Mexico. She can not do both...exclude the earnings to not be taxed on them by the US and then subtract the taxes paid to Mexico. That is essentially skipping US taxes on the earnings and then taking additional credit off when you paid no US taxes. That’s double dipping to skip taxes from both countries. You choose one or the other. 
 

You can read a lot in these forums before next year now that you know she doesn’t have to pay taxes to both countries. But you do need to marry before Jan 1 (new tax year) and you do need to get her SSN soon after her arrival on a K1.  Day 76 in the country is the cutoff for a K1 to get a SSN. Then the window closes for a SSN until she gets an EAD card or greencard. Having that SSN for your tax return is so much easier than all the ITIN rules.

 

And you don’t need to worry about all the talk of greencard test or physical presence test. At the end of the year, she won’t have either. But she gets a perk for being married to a US citizen. You both just say you want her to be a resident for tax purposes on a written, signed statement...and she is one. Poof! Easy peasy!! The IRS treats her like a resident so you can file a joint return.

 

Edited May 15, 2021 by Wuozopo

[Very_44_EP 21]

Thanks, all!  The idea that we could get the MFJ tax benefit and have her only be in the US and married for a few weeks of the tax year was bending my brain a bit.  Good to know that MFJ is available (if all goes well).