Filing American Taxes with Foreign Spouse (Non Resident Alien)

[IMA_FARANG]

In april I had to mail my return ( with the W7 and thai wife passport) to a special address in Texas(I think), about six weeks later got her passport back, maybe a month later got her itin number. now next year taxes, I think I can do online using the same itin number. FYI, I also filed an amend prior year taxes at the same time.

ps, Next year I'm thinking of adding her parents as my dependents.

Now I like the dependents idea. Factually, there is a fair chance many Farangs are providing more than 50% of their in-law's support. Many certainly are doing that monetarily. The trick might be how to document the support sufficiently for the IRS, since they look at more than just documented income.

Check that - believe dependents must be citizens or living in US under current laws (but it has been several decades since I checked).

------------------------------------

Check carefully the requirements for foreign dependents in the instructions for filling that out in the tax forms.

NOT ALL foreign dependents are allowed to be claimed on the U.S. tax form as a dependent simply because they are married or dependent on their U.S. spouse.

Their are specific requirement based on residence and amount of support you give them that must be met for them to be claimed as your dependent.

In the beginning instructions for filling out s form 1040 tax return, their is a list of what constitutes a legal dependent and what does not. qualify for a legal dependent according to the IRS definition.

This also applies to children of your marriage to a foreign spouse., you need to carefully red the requirements of what the IRS will accept as a legal dependent.

[JimGant]

"From. reading these posts, I can conclude that even if I am filing a joint account with my Thai wife, who has an ITIN number, and she inherits $200,000, or wins 3,000,000 baht in the Thai lottery, or buys a piece of land for 1,000,000 baht and sells it for 3,000,000 baht, we do not have to claim any of that money on my US tax return because she is not a US citizen and its her money."

By requesting an ITIN for your wife, in order that she be treated as a resident alien for tax purposes, then all her worldwide income is subject to US taxation. Period (but subject to offsetting tax credits for taxes paid in Thailand). If that proves to be inconvenient/expensive, revoke the ITIN, and have her revert to non resident alien status. You still can check the "spouse" box on your Form 1040, which will still need to be filed "Married filing Separately", unless your Thai marriage was a simple Buddhist (unofficial) affair.

If you're married to a Thai citizen, living FT in Thailand, and you choose the "married filing separate" option for your tax return, then your wife's Thai income/financials remain outside of the U.S. tax system. But you get taxed at essentially the higher single filer rate.

Unless she received an ITIN -- then she's treated as a resident for tax purposes. Thus, all her worldwide income, to include that in Thailand, is subject to US taxation. If you file "Married filing Separate" then she too has to go that route in filing (although if she has an ITIN, I cannot see any scenario where not filing jointly would be superior). But, bottom line: filing separately does not exclude her Thai income, if, indeed, she has an ITIN.

As far as getting taxed at "essentially the higher single filer rate," well, the marriage tax still exists, at least at the higher marginal rates. For 2015, a single taxpayer's 28% rate doesn't kick in until a taxable income of $90,751. However, if you file Married filing Separately, 28% kicks in at $75,601 TI. But, again, the winning scenario for most of us reading this, with Thai wives, is: get an ITIN and file Married filing Jointly.

[TallGuyJohninBKK]

If you're married to a Thai citizen, living FT in Thailand, and you choose the "married filing separate" option for your tax return, then your wife's Thai income/financials remain outside of the U.S. tax system. But you get taxed at essentially the higher single filer rate.

Unless she received an ITIN -- then she's treated as a resident for tax purposes. Thus, all her worldwide income, to include that in Thailand, is subject to US taxation. If you file "Married filing Separate" then she too has to go that route in filing (although if she has an ITIN, I cannot see any scenario where not filing jointly would be superior). But, bottom line: filing separately does not exclude her Thai income, if, indeed, she has an ITIN.

I don't believe that's correct, Jim.

A U.S. citizen living in Thailand with a Thai wife can request an ITIN from the IRS solely for purposes of claiming the wife as a spousal exemption on the U.S. citizen's married, filing separate tax return.

The Thai wife merely having an ITIN doesn't automatically subject her Thai income to U.S. taxation. That only happens if the husband/U.S. citizen also elects to go the married filing jointly route.

Edited October 3, 2015 by TallGuyJohninBKK

[JimGant]

A U.S. citizen living in Thailand with a Thai wife can request an ITIN from the IRS solely for purposes of claiming the wife as a spousal exemption on the U.S. citizen's married, filing separate tax return.

Ah, that's the piece I was missing -- well explained here: https://americansabroad.org/issues/taxation/us-tax-implications-of-a-non-american-spouse/

And, from the W-7 instructions on reasons for applying: "A resident or nonresident alien spouse who is not filing a U.S. tax return (including a joint return) and who is not eligible to get a SSN but who, as a spouse, is claimed as an exemption."

Obviously, John, that's the route you've gone. In my mind, applying for an ITIN automatically meant your wife would be treated as a resident alien for tax purposes, thus subjecting all income to US taxes. But, if the W-7 is not attached to a joint tax return, such is not the case.

[TallGuyJohninBKK]

Yep... that's correct... I didn't think I/we were tax law breakers!!!

But for others reading here, the one other element that has to be present (besides the wife getting an ITIN) for an American husband to claim an additional tax exemption for his Thai wife on his own tax return (with both living in Thailand) is that the Thai wife has to have ZERO U.S. source income (though she can have any amount of non-U.S. source income she wants).

According to the IRS, if the Thai wife has even $1 of U.S. source income of any kind, then she's ineligible to be claimed as an additional personal exemption on your (the husband's) married filing separately U.S. tax return. And that exemption worked out this past year to about an additional $4000 reduction off the husband's otherwise taxable income in a married, filing separately situation.

And since the Thai wife in that situation has no U.S. source income and is not being treated as a U.S. resident for tax purposes, she has no U.S. tax filing obligation either on the husband's return or separately on her own.

[JimGant]

Even with her moderate income, I found doing a married filing jointly return next year should not increase my tax obligation vs married filing separately. I presume that's because she's getting credit for the fact she's already paying income taxes on her Thai income into the Thai tax system.

John, I would think filing jointly would be superior to MFS, particularly if her Thai tax credits approximate her US tax amount. Also, twice the standard deduction for you, plus a good chance your marginal tax rate would be lower.

Without getting too nosy, how'd the number comparison work out for both methods?

Thanx.

[TallGuyJohninBKK]

A couple things on that:

I'd never been in that situation before -- having a NRA spouse, and so I was having to familiarize myself with some pretty complicated and arcane tax issues I'd never dealt with before. Originally, I was fearing that if we filed MFJ, that her job income would push up our marginal tax rate. So I made the decision for our first year, to do MFS, knowing that I could always change to MFJ for future years.

However, by the time I finally got around to doing our final filing, and all the learning that went with it, I ended up doing a MFJ mock-up filing with our real numbers, to see how it compared with our actual MFS filing for 2014. And to my surprise, when everything washed out with the US-Thai foreign income calculations for her pretty decent job income (by Thai standards) and everything else, I learned that her income pretty much ends up being tax neutral for us in a MFJ situation.

So, for next filing, year 2015, we'll probably do MFJ. And all the more reason, because I learned this past tax cycle that an American is not allowed to do a IRA to Roth IRA conversion for some reason in a year where they're having a MFS status. And, it turns out, I did a IRA to Roth conversion in 2014 that will count for the 2015 tax year. So, unless I want to go back and undo that, which I don't, I'm pretty much going to need to do MFJ for the 2015 tax year.

As we discussed above, under the current laws, it's easy to do MFS and then later to change to MFJ whenever you choose to. But on the flip side, once you've decided to do MFJ if you do, you really can't change back to MFS and then go back to MFJ at any point further down the road. So best to make sure MFJ is the right decision for your situation, before you make that decision.

[JimGant]

Thanks, John. Valuable info.