Imagine you are interning at a museum in Paris. Love is in the air. During one of the exhibits you spent countless hours assembling, you meet a charming Parisian artist and fall in love. So when the museum offers you a full-time position you eagerly accept. A year later that charming artist drops to one knee and asks you to get married. Before you know it, you are happily married and living in Paris!
While not every union is that romantic there are always tax implications to consider when you marry a non-U.S. citizen.
The choice of a tax filing status should be made carefully, as it ultimately can affect not only your tax rates, but also which additional deductions you may be able to claim. The right decision could be the difference between a honeymoon spent in a mosquito-ridden shanty and one spent at a five star resort.
The IRS defers to state or foreign law to determine whether you have a valid marriage. In most cases, a marriage in a foreign country is valid for U.S. tax purposes. Married individuals are not allowed to file under the single filing status, and when you are married to a non-U.S. spouse (referred to as a nonresident spouse) you are also unable to file a joint return unless a separate election is made to do so.
Here are the options when you are married to a non-U.S. citizen. You should consider the options carefully, as each will have a different effect on your tax and reporting requirements.
Married Filing Separately
The default filing status for a U.S. citizen married to a nonresident is Married Filing Separately (MFS). While the MFS filing status does not pose any additional hurdles for getting your return easily filed, it does come at a cost.
The biggest downsides to filing under this status are the loss of some potential tax credits and deductions, and overall higher tax rates when your taxable income is more than $75,600. If you are married to a nonresident spouse and do not have any dependents to claim, this may be the only filing status available to you.
Head of Household
The more beneficial option available if you do have a dependent is to file using the Head of Household filing status. In order to select this filing status, your dependent child must live with you for more than half of the year, and you must pay more than half of household expenses – like rent, utilities, etc.
In many cases, this is the most beneficial status available when you are married to a nonresident spouse because it is accompanied by lower tax rates and additional deductions. Just remember, this status also requires your dependent to be a U.S. citizen or resident with a valid social security number. So, if you have not formalized the citizenship of your child born abroad you may look at doing so.
Married Filing Jointly
The final option is to make an election to treat your nonresident spouse as a U.S. resident for tax purposes. Making this election allows you and your spouse to file a Married Filing Jointly (MFJ) tax return. Filing MFJ will allow you both to take advantage of lower tax rates and deductions that are otherwise not available to MFS filers, such as and higher standard deduction. However, it will also subject your spouse’s entire income to U.S. taxation and possibly subject your spouse to other informational reporting requirements.
Practically speaking, this status is most beneficial if your spouse does not earn any income or otherwise have any accounts or investments that may cause negative tax consequences from the U.S. side.
One additional hurdle for choosing this option will be the requirement for your spouse to obtain an Individual Taxpayer Identification Number (ITIN) if they do not already have a social security number. This will require you to gather additional documentation that must be sent to the IRS. It could also cause delays in the processing of your return.
Before you file your return, discuss the best filing status for your particular situation with a tax advisor. The experts at H&R Block Expat Tax Services can assist you with this decision.