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Choosing Tax Resident Status for a Non-Resident Alien Spouse

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Choosing Tax Resident Status for a Non-Resident Alien Spouse

 

The Internal Revenue Code allows a U.S. citizen or a resident alien to treat their spouse as a tax resident of the U.S. This option provides some advantages and some taxing consequences for the husband and wife. So, one must carefully understand the full implications of declaring non-resident aliens as tax residents.

What happens when you choose a non-resident alien spouse as a tax resident?

First thing, your spouse will be considered as tax resident all the tax years, for which you chose your non-resident alien spouse to be considered a tax resident. This will make your spouse liable to file tax returns for all the years they are considered a tax resident.

Secondly, you or your spouse cannot claim any tax treaty benefits that a non-resident alien may claim.

Thirdly, the worldwide income of yours and your spouse will be taxable as U.S. tax residents. Both of you will have to report all worldwide income for the tax year.

The fourth consequence of choosing the status as tax resident, you may NOT be able to use the head of household status.

Lastly, your spouse, treated as a tax resident, must have either an SSN or an individual taxpayer identification number (ITIN).

When & How To Opt for Tax Residency?

The choice of residency is generally made when filing an original joint tax return or by filing a joint amended return using Form 1040X. You must attach a statement, signed by both spouses, to the joint return for the first tax year for which the choice applies. It must contain the following:

  1. A declaration that one spouse was a non-resident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year as per IRC section 7701(b)(1)(A), and
  2. That you choose to be treated as U.S. residents for the entire tax year, and
  3. Each spouse's name, address, and social security number (or individual taxpayer identification number) must be listed. (If one spouse died, include the name and address of the person making a choice for the deceased spouse.)

How to End the Choice to Treat Non-resident Alien Spouse as a Resident?

There are four major ways the choose to be treat your non-resident alien spouses as tax residents can be terminated. These are:

(i) Revocation: Any spouse can submit a signed statement declaring that the choice is being revoked, enclosing the following additional details:

• The name, address, and social security number (or taxpayer-identification number) of each spouse.
• The name and address of any person revoking the choice for a deceased spouse.
• A list of any states, foreign countries, and possessions that have community property laws in which either spouse is domiciled or where real property is located from which either spouse receives income.
• If the spouse revoking the choice does not have to file a return and does not file a claim for refund, send the statement to the Internal Revenue Service Center where the last joint return was filed.

(ii) Death: The death of either spouse ends the choice, beginning with the first tax year following the year in which the spouse died.

(iii) Divorce or Legal separation: A divorce or legal separation ends the choice as of the beginning of the tax year in which the legal separation occurs.

(iv) By Internal Revenue Service for Inadequate records: The Internal Revenue Service has the power to end the choice for any tax year that either spouse has failed to keep adequate books, records, and other information necessary to determine the correct income tax liability, or to provide sufficient access to those records.

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