Living in a foreign country, learning about a new culture and language, and meeting new people is all fascinating. Even more, finding love abroad. Love knows no borders.
If you are a US expat married to a non-resident alien (in other words, not a US citizen or resident), you might wonder how this affects your US taxes. Can you file US taxes jointly with your foreign spouse? Is it beneficial? How do you elect to file your US taxes with your foreign spouse?
Although taxes might be the last thing you want to think about in this happy moment, it is inevitably a “we must talk” topic. Indeed, in sickness and health, through taxes and the IRS… let’s talk about the 6013(g) election.
This article will provide a general overview of the following:
- What Is The 6013(g) Election?
- Benefits Of Filing A Joint Tax Return With A Foreign Spouse
- Drawbacks Of Making The 6013(g) Election To File Jointly
- How To Make The 6013(g) Election To File Taxes With A Foreign Spouse?
- How Can I Terminate Or Revoke The Election To File Jointly?
- The 6013(g) Election Put Into Practice – A Brief Case Study
- Should I Make The Election To File Jointly With My Foreign Spouse?
Let’s get started.
What Is The 6013(g) Election?
The IRS requires US citizens or residents to report their worldwide income. The same is not true for their foreign spouses, who are generally subject to US taxes only if they have US-sourced income.
Married couples, where one spouse is not a US person, cannot file jointly in the US. The US spouse would typically file as “married filing separately” or as a “head of household” if they qualify.
The good news is under Section 6013(g) of the IRC tax code, you can elect that the IRS treat your foreign spouse as a US resident for tax purposes, hence allowing you to file a joint US tax return.
Before further contemplating this election, make sure you comply with the following requirements:
- You must be legally married as of December 31st of the year you make the election – the election will not be valid in the case of legal separation or divorce.
- Neither spouse must have made the election in the past.
- Your foreign spouse cannot be a US citizen or a green card holder.
- Your foreign spouse cannot meet the “substantial presence test.” An individual meets the substantial presence test when he or she is physically present in the US on at least 31 days during the current year and 183 days for three years, including the current year and the two years immediately before that.
You can still apply for the 6013(g) election even if neither of you is a US citizen or resident at the beginning of the year. It’s possible if one spouse becomes a US resident during the calendar year, as outlined in Treasury Regulation §6013-6(c).
Upon filing the election, both spouses agree to subject their worldwide income to income tax in the US. Both taxpayers must file jointly in the first year they make the election. However, they could choose to file separately in the later years.
The 6013(g) shall remain valid for the year you elect it and for subsequent years until its termination or revocation. More about this in a moment.
Benefits Of Filing A Joint Tax Return With A Foreign Spouse
As with every decision-making, it is essential to understand the implications and potential downfalls of making the 6013(g) election. Let’s look at the benefits first.
Electing to file jointly as a married couple in the US has several advantages, such as lower tax rates and higher standard deductions.
For example, if you file as “married filing separately” in 2022, you would be entitled to a $12,950 standard deduction. However, married couples filing jointly would get $25,900 (in 2022). In addition, you could be entitled to foreign tax credits attributable to your spouse, thus decreasing your taxable income and total tax.
Moreover, a married person filing separately cannot claim certain credits such as earned income credit, dependent care credit, or student loan interest deduction. Therefore, filing taxes jointly could potentially solve this problem, again reducing your total tax.
It is also worth mentioning that the foreign spouse becomes a US resident for the purposes of Chapters 1 and 24 and Sections 6012, 6013, 6071, and 6072 of the Code for the full tax year. In simple terms, this means that he or she will not be liable for self-employment tax in the US or the Net Investment Income Tax. However, please note that your foreign spouse could be subject to US self-employment tax under a Totalization agreement.
Drawbacks Of Making The 6013(g) Election To File Jointly
If, for example, your spouse has substantial income or has other considerable sources of investments that would trigger additional taxes and filings in the US, making the election might not be a good choice.
Again, remember that after making the 6013(g) election, your spouse must report all their worldwide income to the US and will have to pay income taxes there. Individuals making this election generally cannot claim any benefits under a US income tax treaty as a treaty country resident.
Another potential disadvantage of the 6013(g) election is that it is binding and you can only make it once in a lifetime. If you or your spouse remarry, the IRS will bar you from making the election in the future.
It is, therefore, an important decision that can have long-term consequences. As such, make sure you get professional advice.
How To Make The 6013(g) Election To File Taxes With A Foreign Spouse?
To make the election, you must attach a statement to your joint tax return for the first tax year the election is to be effective. Unfortunately, the IRS provides no form or specific format as to what this statement should look like.
Nonetheless, it needs to contain the following for the election to be valid:
- You must declare that you are making the election.
- You must declare that you meet all the applicable statutory requirements.
- You must include both spouses’ full names, addresses, and taxpayer identification numbers. To file a joint tax return in the US, your foreign spouse must get an ITIN (Individual Taxpayer Identification Number).
- You must both sign the statement and attach it to your tax return.
Regarding timing, you must make the election before the expiration period for filing a claim for credit/refund for that tax year. The “expiration period” is generally the latter of three years from the day you filed your tax return or two years from the day you paid the liability due.
How Can I Terminate Or Revoke The Election To File Jointly?
There are several ways in which your 6013(g) may end, either voluntarily or involuntarily. You would generally lose the election at the earliest of one of the following events:
- You or your spouse file a statement of revocation.
- Upon one of the spouses’ deaths, the election terminates the year after the decease, unless special circumstances apply.
- If you get divorced during the year or are legally separated. The election would terminate at the beginning of the year when the divorce or legal separation occurs.
- Termination by the Secretary. The IRS can terminate the election if it determines that either spouse has failed to keep adequate books and records, has failed to grant access to such records, or has failed to supply the necessary information.
Once your election gets suspended, you will only be eligible to file a joint tax return in the US if you both become income tax residents in your own rights.
The 6013(g) Election Put Into Practice – A Brief Case Study
To finalize, let’s go through some practical scenarios to broaden our understanding of the 6013(g) election.
Here is the plot: Helen and Juan got married in Barcelona, Spain, in 2022 and are currently living there. Helen is a US citizen, whereas Juan is a Spanish citizen who has never traveled to the US. Suppose they meet all the criteria to make the 6013(g) election.
When does it make sense to make the election?
Scenario 1: Juan has no sources of income, whereas Helen earns $120,000 per year.
A typical scenario in which married couples may choose to make the election is when one spouse has no sources of income. In this case, Helen could benefit from the standard deduction and any credits available for married couples filing jointly without increasing her total taxable income in the US.
However, before jumping to a quick conclusion, we must consider several other aspects. What type of income is Helen making? Can she exclude her income from income tax as a US expat living abroad? Does she have any foreign tax credits that may offset her US tax liability? What happens if Juan’s income situation changes in the future?
Choosing the best tax filing status is not a decision that you should make lightly. Make sure you are fully informed about the potential ‘’what ifs’’ before proceeding with the election.
Scenario 2: Both and Juan earn $120,000 per year.
Here, making the election and filing jointly in the US would add a considerable layer of income to Helen’s US taxable income. Not to mention the taxes Juan would be subject to pay in Spain.
Although they could claim foreign tax credits on their US tax filing and benefit from higher income thresholds for certain tax breaks, the drawbacks, in this case, would potentially outweigh any benefits.
If adding your foreign spouse’s worldwide income to your total income increases your US taxes, it is inarguably not beneficial to proceed. Again, each situation is unique and needs special consideration.
Scenario 3: Juan owns 95% of a company in Spain, whereas Helen owns the remaining 5%.
This case the election would add an extra layer of complexity. Any US resident who is an officer, a director, or a shareholder of a foreign company and owns 10% or more must file Form 5471 in the US.
The reporting requirements get more complex and extensive when the ownership of the foreign corporation exceeds 50%. You would be required to treat your foreign corporation as a “controlled foreign corporation” (CFC). Controlled Foreign Corporations that make a profit during the year are subject to the Global intangible low-taxed income or “GILTI tax” in the US.
These are complex terminologies that can get as difficult as the tax form itself. It would complicate their tax filings unnecessarily.
Without the election, Helen does not need to file Form 5471 in the US.
Should I Make The Election To File Jointly With My Foreign Spouse?
As you can see, there are many factors to consider when talking about the 6013(g) election. And in this article, we are just scratching the surface. Before deciding to move forward, it is essential to understand the potential tax implications and the tax savings you can expect to realize.
Again, it is a once-in-a-lifetime decision. Therefore, make sure you speak to a US expat specialist and carry out proper tax analysis and planning in advance.
Online Taxman can guide you through the whole process, from setting up an ITIN for your foreign spouse, advising you on the potential tax savings after making the election, or simply discussing the implications it may have for you as a married couple.
Do not hesitate to schedule a consultation with one of our expat tax professionals to ensure you are heading in the right direction. “Prevention is better than cure”, they say.
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