Possibly off topic - seeking resources on USC filing taxes when married to NRA spouse

[visacats 9]

Hi,

I suspect this isn't the right sub-forum but I couldn't see a better one - please shift as appropriate.

My wife and I recently married (November 2021) and have just filed an I-130 towards CR1. She is a USC living in California and I am a UK/NZ citizen living in the UK. 

She hasn't been married before and we are wondering about the pros and cons of her filing as Married Filing Separately (and I think claiming an exemption for me as a non-resident alien) or whether we file as Married Filing Jointly whilst awaiting CR1 (thus treating me as a US tax resident - obviously then declaring my worldwide income etc). 

On the face of it, I can't see any immediate benefits of filing jointly whilst I am still abroad, as we earn broadly the same amount and have no kids. We fall into the 24% federal income tax bracket and the 9.3% California income tax bracket regardless of whether we consider our income individually or jointly.

Obviously this is a complex and multifaceted area - just wondering how people have approached this. The easy option is of course just hiring an accountant for a consult which I am open to doing, but if there are any existing resources around this I would be grateful.

Cheers,

visacats

 

Edited December 18, 2021 by visacats

[Crazy Cat 41,985]

***I moved this topic to the Tax & Finances During US Immigration discussion area****

 

There are some good tax folks here.  Personally, I (US citizen) filed Married Filing Separately for tax years 2015 (the year we married), 2016, and 2017 (the year my wife became a legal resident via a CR-1) since my wife has foreign income from Taiwan.  But, as you stated, there are multiple factors to consider when determining the best tax strategy.  I always recommend seeking a consult from a real tax pro, especially the first tax year after entering the US.  Good Luck.

Edited December 18, 2021 by Crazy Cat

[SalishSea 17,980]

9 minutes ago, Crazy Cat said:

There are some good tax folks here. 

@pushbrk

[Redro 4,611]

@Wuozopo is also very informed when it comes to taxes. 

 

My husband files MFS but that's because we are both overseas. 

Usually one of the reasons behind filing MFJ is to show financial co-mingling if the beneficiary comes from a high fraud country. @JeanneAdil generally advises that when someone marries a person from Morocco or Nigeria. 

[pushbrk 13,000]

10 hours ago, Jorgedig said:

@pushbrk

Yes, but I'm not one.  I would advise consulting  a tax professional with whom you both can share any pertinent details.

 

[Wuozopo 4,293]

22 hours ago, visacats said:

On the face of it, I can't see any immediate benefits of filing jointly whilst I am still abroad, as we earn broadly the same amount and have no kids. We fall into the 24% federal income tax bracket and the 9.3% California income tax bracket regardless of whether we consider our income individually or jointly.

I am going to give you a brief basic concept to chew on. As an example case,  her taxable income is $90,000.

That is her salary plus interest, dividends…all the money that comes in. I am using the 2021 draft version of the tax table which you can use and look up her actual income. https://www.irs.gov/pub/irs-dft/i1040tt--dft.pdf  (And I hope I can get photos to populate properly.)

If she files Married Filing Separately with a taxable income of $90,000 see her tax underlined in the photo marked MFS in pink.

 

But if she files Married Filing Jointly, there is an additional standard deduction for you of $12550. So reduce her $90k by $12,550 and now her taxable income is $74,450. Less money, less tax and Joint filing has a lower tax rate too. See her tax in the MFJ picture underlined in green.

 

Understand that while living in the UK, your “earned income” (which means salary from a job) qualifies for the Foreign Earned Income Exclusion. Yes your income is reported, but qualifies to have the tax it would accrue excluded. Your investment income, called “unearned income” by the IRS will be taxed.

 

This is a simplified example because everybody has different things that can affect their final taxable income, but I think it shows you why many find MFJ advantageous.

 

Forgot to say, if those number look outrageous, remember tax money is being held out of every paycheck so she will have already paid most of that in and may get a refund.

 

 

Edited December 18, 2021 by Wuozopo

[Wuozopo 4,293]

16 hours ago, Kor2USA said:

@Wuozopo is also very informed when it comes to taxes. 

 

My husband files MFS but that's because we are both overseas. 

Usually one of the reasons behind filing MFJ is to show financial co-mingling if the beneficiary comes from a high fraud country. @JeanneAdil generally advises that when someone marries a person from Morocco or Nigeria. 

Thanks.

 

It makes sense for you husband to file separately because he gets the foreign income exclusion and probably owes zero US taxes anyway. Adding you for the extra standard deduction would be useless because you can’t get taxable income  any lower than zero. Or maybe if he has big investments, he might have some amount of tax on the interest/dividends earned.

 

For a person interviewing in London, I don’t think a joint return does anything to boost the visa evidence. They likely don’t even look at the filing status. They just want to see if the money earned is enough. They rarely even discuss it if it’s over the poverty level. Filing should be about which status gives you the lower tax bill.

[Merica-n 65]

On 12/17/2021 at 6:06 PM, visacats said:

She hasn't been married before and we are wondering about the pros and cons of her filing as Married Filing Separately (and I think claiming an exemption for me as a non-resident alien) or whether we file as Married Filing Jointly whilst awaiting CR1 (thus treating me as a US tax resident - obviously then declaring my worldwide income etc). 

As a TL DR to what others have said, I would say that in most situations MFS is an unfavorable choice, because you lose out on many different credits, have reduced deductions and pay higher tax rates on the same level of income.  The government for whatever reason generally penalizes taxpayers for choosing this status, so usually its almost always pay less money when they file MFJ.

 

However, in situations like yours where both people are from high income earning areas (UK and California), it probably makes sense to consult a tax advisor to punch it in both ways and make a decision as to which is lower.

Edited December 22, 2021 by Merica-n

[iwannaplay54 985]

On 12/17/2021 at 6:06 PM, visacats said:

Hi,

I suspect this isn't the right sub-forum but I couldn't see a better one - please shift as appropriate.

My wife and I recently married (November 2021) and have just filed an I-130 towards CR1. She is a USC living in California and I am a UK/NZ citizen living in the UK. 

She hasn't been married before and we are wondering about the pros and cons of her filing as Married Filing Separately (and I think claiming an exemption for me as a non-resident alien) or whether we file as Married Filing Jointly whilst awaiting CR1 (thus treating me as a US tax resident - obviously then declaring my worldwide income etc). 

On the face of it, I can't see any immediate benefits of filing jointly whilst I am still abroad, as we earn broadly the same amount and have no kids. We fall into the 24% federal income tax bracket and the 9.3% California income tax bracket regardless of whether we consider our income individually or jointly.

Obviously this is a complex and multifaceted area - just wondering how people have approached this. The easy option is of course just hiring an accountant for a consult which I am open to doing, but if there are any existing resources around this I would be grateful.

Cheers,

visacats

 

Filing jointly while abroad usually results in a higher deduction and lower tax rates.

112,000 of your (foreign earned) income is declared then exempted (use physical presence in your home country) and the two of you then exclude -$24,000 leaving the rest as taxable in lower brackets.  

When such a question came up for us I did it two ways and picked the one with the lowest overall tax bill.  
I worked overseas for 8 years.  I never ran into any situation where jointly had a higher tax bill than separately.

 

 

[visacats 9]

On 1/6/2022 at 11:27 AM, iwannaplay54 said:

Filing jointly while abroad usually results in a higher deduction and lower tax rates.

112,000 of your (foreign earned) income is declared then exempted (use physical presence in your home country) and the two of you then exclude -$24,000 leaving the rest as taxable in lower brackets.  

When such a question came up for us I did it two ways and picked the one with the lowest overall tax bill.  
I worked overseas for 8 years.  I never ran into any situation where jointly had a higher tax bill than separately.

 

 

Thanks - my income exceeds 112k (as does hers)… could the foreign tax credit also be used in addition, do you know?

[carmel34 3,646]

Whether your USC wife should file as MFS or MFJ depends on which approach lowers her US and CA tax bills.  She can run the two alternatives through one of the online tax providers to see which method of filing leads to the lowest tax liability.  In most cases, the best from a financial standpoint is MFJ.  The impact of the foreign earned income exemption depends on the specifics of your income in the UK.  Keep in mind that for MFJ, a completed and verified W-7 is required, this can be a hassle that some choose to avoid and therefore go with MFS.  Plus, IRS tax returns filed with a W-7 can only be submitted with a paper return and all schedules, forms, attachments, W2s, 1099s, etc., which will delay its processing by months, another drawback to consider.  Here's a link about the W-7 and ITIN that may be useful as you make a decision.  Good luck!

 

https://www.irs.gov/individuals/international-taxpayers/obtaining-an-itin-from-abroad

[Wuozopo 4,293]

1 hour ago, visacats said:

Thanks - my income exceeds 112k (as does hers)… could the foreign tax credit also be used in addition, do you know?

Yes. Instead of taking an exclusion for her  income you can use form 1116 to get a credit for the taxes she paid to the UK.

 You figure the full US tax on both incomes. That would be her gross income before taxes, national health, etc are deducted. Then get a credit on the US return for what she paid the UK in income tax. UK income tax is very high and she’s getting into the 40% bracket or even 45%, whereas together you may be in a US 32% bracket.

 

So that’s a third way to figure taxes to see which one is lowest for you

 Married Filing Separately

 MFJ with foreign income exclusion 

MFJ with foreign tax credit.

 

Edited January 24, 2022 by Wuozopo

[iwannaplay54 985]

19 hours ago, visacats said:

Thanks - my income exceeds 112k (as does hers)… could the foreign tax credit also be used in addition, do you know?

The calculation is easy, straightforward, and free on Turbotax or similar site.  Rather than depend on theoretical discussion it would be better to run the numbers, compare them, and take the option with the lowest overall tax bill.

 

MFS in my experience is going to kill the USC’s taxes LOL.  Wow at those brackets.