How to file US Taxes with Worldwide Income or a Foreign Spouse
I will be reviewing foreign tax credits and how to include your nonresident spouse for filing married jointly. If you are single with foreign income, review the tax credit section 1b.
Video tutorial:
Context: My aunt is a Chinese citizen but was granted her permanent residency with her green card back in September 2021 but her husband decided to stay in China and not get his green card. Thus, my aunt received her Social Security number (SSN) while my uncle in law did not. (I also had to help her file for her SSN here since the DS-260 Immigrant Visa Electronic Application did not issue her one.)
She opted to just paper file “Married filing separately” in 2021 since her income was low that year. However, in 2022, she needed to file married jointly for the following reasons that would lead to less tax liability:
Higher standard deduction
Obamacare/healthcare.gov marketplace requires you to file as married jointly if you want cheaper health insurance through premium tax credits…with some exceptions here
Other tax benefits
Thus, after hours of research, I finally helped her file her US tax return. This is for entertainment or educational purposes only and should not be construed as financial or investment advice. Here is how I helped her:
I looked for cheap tax softwares that would accommodate her situation:
I opted to just use www.freetaxusa.com/freefile2022/ since it gives free federal and state tax returns for those with an adjusted gross income (AGI) under $41,000.
Put in a fake social security number for the nonresident spouse which you will need to whiteout later and leave blank when you mail return as you can not file electronically in this no social security number (SSN) situation.
You can use software such as https://www.sejda.com/ to whiteout.
My aunt does not have any foreign income. Her husband (who lives abroad) also has very little foreign income, so I did not need to apply for any foreign credits for them. However, if I did need to apply for foreign credits, I would have gone with TaxAct.com to apply the Foreign Earned Income Exclusion (FEIE) for her husband.
Referral link for 20% off for TaxAct: https://refer.taxact.com/s/bz7871718
The Foreign Earned Income Exclusion (Form 2555) is generally best for taxpayers whose income is earned in a low- or no-income tax country. It will allow them to shield up to $112,000 (2022 figure) from U.S. taxation while the Foreign Tax Credit would have little or no benefit. Form 1116 is used to claim the Foreign Tax Credit (FTC) and subtract the taxes taxpayers paid to another country from whatever they owe the IRS so its better for higher taxed countries and is easier to qualify for than FEIE. Read more here.
You can use this calculator here to estimate tax savings.
Requirements for FEIE (harder to qualify than FTC):
Physical Presence Test: You must be physically located outside U.S. for 330 days during a 12-month period and establish tax home in foreign country
Bona Fide Residence Test: You must be resident of foreign country for an uninterrupted period that covers an entire tax year and establish foreign tax home
If you need an extension, file Form 2350: Application for Extension of Time To File U.S. Income Tax Return For U.S. Citizens and Resident Aliens Abroad Who Expect To Qualify for Special Tax Treatment
TaxAct’s Deluxe package was $21.36 for the Federal return that included Form 2555. State return is an additional cost.
More expensive option if TaxAct does not fit your needs: https://www.myexpattaxes.com/
After finishing your tax returns, you need to include a signed statement from both spouses indicating their status as one being a non-resident alien and the other being a U.S. citizen or resident alien on the last day of the tax year, and their choice to be treated as U.S. residents for the entire tax year. Provide the name, address, and identification number for each spouse. Template:
By the last day of tax year 2022, I, [Resident Spouse Name], declare that I am filing as a U.S. resident within the meaning of IRC section 7701(b)(1)(A) and my husband, [Nonresident spouse], was not. More specifically, I, [Resident Spouse Name], have received my permanent residency status with USCIS# [insert].
We both choose to be treated as U.S. residents for the entire tax year.
Name: [Resident Spouse Name]
Address: [insert]
Identification number (SSN/TIN): [insert]
Spouse: [Nonresident spouse]
Address: [insert]
Identification number: [insert]
Attached is a certified copy of [Nonresident spouse] birth certificate and national identification card, proving both foreign status and identity.
I, [Resident Spouse Name], certify this statement to be true.
Signature: __________________________________
Date: _____________________
I, [Nonresident spouse], certify this statement to be true.
Signature: __________________________________
Date: _________________________
Small note: I would have used a passport for nonresident spouse but the spouse did not have a passport. But if you had a passport, you would write “Attached is a certified copy of [Nonresident spouse] passport, proving both foreign status and identity.
Obtain the non-resident alien spouse's Individual Taxpayer Identification Number (ITIN) by submitting Form W-7. Attach a copy of the Form W-7 and necessary supporting documents, such as a certified copy of the non-resident alien spouse's passport, to the tax return.
Mail the federal tax return, declaration statement, Form W-7, and supporting documents to the IRS, but not to the address listed in the instructions of Form 1040, 1040A, or 1040EZ. Remember to attach the W-2. Instead, send to the address specified for ITIN applications:
Internal Revenue Service
Austin Service Center
ITIN Operation
P.O. Box 149342
Austin, TX 78714-9342
File an extension for your state tax return until you receive the spouse’s ITIN. For Mississippi, I did not have to file an extension since I was owed a refund rather than having to pay.
I also decided to just mail the state return along with everything I mailed for the federal return excluding the supporting identity documents. The state may just return everything to me and tell me to file with the spouse’s ITIN once I receive it from the IRS but let’s see if they just direct deposit the state refund owed to me.
MS State Return with refunds was certified mail to
Mississippi Department of Revenue Office of Revenue
PO Box 23058
Jackson, MS 39225-3058
MS State Return with payments was certified mail to
Mississippi Department of Revenue Office of Revenue
PO Box 23050
Jackson, MS 39225-3058
Check with your own state to see where to mail and what to do specifically.
Note: I, Baili Zhong, used the word “I” in this article to refer to my aunt since it was easier to write for me than saying “my aunt” every single time.
Good luck and double check that you and your spouse have signed and dated in ink by hand everywhere you need to in the federal, state, and statement declaration. Also use certified mail, so you can verify the IRS and state received your tax documents. I printed black and white double sided to save paper.
More commentary: I agree with you that this was a very annoying process and that the IRS was really slow about responding. In 2021, I actually included the W7 along with my married filing separately federal tax return, but the IRS did not issue a TIN since I did not do married filed jointly so that is why in 2022, I am doing married filing jointly. It took about 8 months for the IRS to respond.
3/13/2023 Update: Both taxpayers need a tax identification number to file married jointly for the Mississippi state tax return, so the tax was paid in the meantime (even though a refund should have been issued if filing married jointly) and an amended return will be filed once the ITIN is received from the IRS.
Small note: “If your ITIN has not been used on a federal income tax return for three consecutive years, it will expire.” Read more here.
* All videos and content are for entertainment or educational purposes only and should not be construed as financial or investment advice. Any links provided may include referrals that help financially support me and the channel. Referral offers and information provided may change or update over time so make sure to do your own research.