The Filing Status Options for a US Resident with a Non-Resident Alien Spouse
The US has no jurisdiction over a non-resident spouse who has no connection with the US. The available filing status options on a Form 1040 are Single, Married Filing Jointly, Married Filing Separately and Head of Household.
Filing ‘Single” is not an option. If the taxpayer is legally married, they cannot choose the status of “Single’ even if they were married outside the US. Under Reg. 301.7701-18(b)(2), “Two individuals who enter into a relationship denominated as marriage under the laws of a foreign jurisdiction are recognized as married for federal tax purposes if the relationship would be recognized as marriage under the laws of at least one state, possession or territory of the United States, regardless of domicile.”
Filing “Married Filing Separate” is an option with limitations. Though the taxpayer can use this status, there are drawbacks such as higher tax rates than MFJ, loss of credits and other tax benefits.
“Head of Household” is an option if they qualify under the normal rules. The client will need to qualify under the normal HOH rules such as paying more than half the cost of keeping up a home that was the principal home for certain dependents or relatives. For details, see the IRS Publication 501, ‘Dependents, Standard Deduction, and Filing Information’.
“Married Filing Joint” might subject the NRA spouse to US taxes. Spouses normally file MFJ except when they are married to an NRA. Generally, you cannot file as MFJ if either spouse was an NRA at any time during the tax year. All is not lost, however, because the couple can make an election to both be treated as US residents and file a joint return.
MFJ may not be a good if the NRA spouse has income or foreign financial assets of their own. Remember, as US taxpayers we pay US tax on our worldwide income no matter where it is earned. Any income of that NRA Spouse must now be reported in the US and taxed appropriately. In addition, the NRA spouse is now subject to the FBAR and other foreign financial disclosure rules. On the bright side, the NRA spouse is allowed foreign tax credits under the normal rules.
If after a thorough analysis, MFJ is still the best option a §6013 election can be made that will treat the NRA as a US resident. This election is in effect for future years unless your client revokes it and once revoked, the election can never be taken again. Also, any treaty benefits the NRA may have received prior to the election will no longer work. The election is also available for NRA’s who have moved to the US and want to be treated as a resident for the full tax year as opposed to the date when they arrived in the US.