Last week, I continued answering income tax-related questions that frequently pop up this time of year. While it’s the “stuff” that FAQs are made of, there are enough twists and changes from year to year to preclude anything but the most general and open-ended FAQ file.
This week, I’ll speak to:
THE BIG QUESTION!
The Citizen or resident test often prompts the BIG question:
I’m a US citizen (or resident) living in the USA but my spouse and children are Philippine nationals living in the Philippines. Does this mean I cannot claim them as dependents?
Generally speaking, the Citizen or resident test would require the a dependent either to be a U.S. citizen or to be a legal resident of the USA, Canada or Mexico. So, at first blush, one would think the answer to the BIG question is, “No.”
As with all things “tax,” there really isn’t one simple answer to any question–the BIG question, included. There are tax strategies that can be employed to undo the bonds of this test.
STRATEGY FOR SPOUSE
So your foreign national spouse isn’t a legal resident of the USA, Canada or Mexico but you want to claim him/her as a dependent for income tax purposes? It cannot be done. BUT, there is a better way to accomplish the ultimate task — reducing your taxable income. The strategy is an election to file a joint return with your spouse.
This election is considerably more involved than just checking the box, however. It’s really not an election to file jointly, but an election for your foreign national spouse to be treated as a U.S. resident for income tax purposes alone for the purpose of your filing a joint return. This election is covered by Internal Revenue Code (IRC) § 6013(g).
Since a US taxpayer is required to have an income tax identification number (either a Social Security number or an IRS issued ITIN), your elected-resident spouse will have to obtain an ITIN. This is accomplished via filing Form W-7 with required, notarized documentation as per the form’s instructions.
When completing Form 1040 (only this form can be used for this strategy), another statement must be attached to your return. That statement must say that, in accordance with IRC § 6013(g), both you and your spouse elect to have your spouse treated as a US resident for income tax purposes. This statement must be signed and dated by both you and your spouse, and attached to your return.
One drawback, besides obtaining an ITIN, is that your return must be filed in paper format in the year that this election is made — it cannot be filed electronically. The election remains in place until it is terminated; the election can only be made once (cannot be made a second time in years subsequent to a termination).
Your tax return package for the year of election will look something like this (in order):
- Form W-7
- Form W-7 supporting documentation
- Form 1040
- Form 1040 schedules and related forms
- IRC § 6013(g) election statement
This return will be filed with the Internal Revenue Service Center in Austin, TX – make sure you have the correct zip code in the address. (The Form W-7 instructions will provide the address and zip code to use.)
STRATEGY FOR SPOUSE & CHILDREN
With an IRC § 6013(g) election turning your nonresident foreign national spouse into a U.S. resident for income tax purposes, your and your spouse’s children, so long as they lived with your spouse and meet all other requirements stated last week, can be claimed as dependents. Like any other dependents claimed for income tax, however, each will also need an ITIN. So, the number of Forms W-7 increase the size of your tax package.
IS IT WORTH THE TROUBLE?
That’s a personal question that only you (and your spouse) can answer. If you’ll be living separately for quite some time, or you are both living together outside of the US, Canada and Mexico with no intention of moving, it may well be worth the effort. If your separation is short term (example: awaiting a visa), then you may have second thoughts.
IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, I must inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.
Once the wife comes to the US on a visa, you can also file an amended return for the past year(s).
Hi Kevin – Long time no see!
Yes, the amended route is probably the less stressful method to achieve the joint filing status. Of course, taxpayers are limited with amendments – being able to go back up to three years. If the separation was longer than three years, those tax years outside the window of opportunity are lost to amending.
😉
Paul,
Good article and it caused me to reply to one of your posts for the first time. I am wondering about your comment about second thoughts on a short term separation from your spouse. I was married in 2010 in the Philippines. My wife is still living there and I was wondering even with the extra forms why I wouldn’t want to take advantage of the ability to file a joint tax return. Also regarding the IRC 6013(g) statement is there a specific format or just a general statement signed by both of us.
Thank you in advance for any light you can shed on this matter.
Thank you, Steve –
The short term I was thinking of was something along the lines of a year or so, while waiting for a visa (“green card” type). There are additional procedures that need to be followed when your spouse becomes a resident on his/her own, if you have the election in force.
Once elected, US taxpayer and spouse must file “Married Filing Jointly” for all of their tax returns until the election is terminated. This election is usually employed by US taxpayers who go to a foreign country as part of their job, fall in love, marry and continue to live int he foreign country. Obviously, others find benefit to the election as well.
Once terminated, a US taxpayer cannot make the election a second time. It’s a “one-shot” deal.
As to format, there is no “set” statement. IRS Publication 519, U.S. Tax Guide for Aliens, provides guidance as to what the statement needs to say, and how to go about putting one together. (Pub 519 is referred to in the Form 1040 instructions for “Married Filing Jointly” selection.) The publication is available at: http://www.irs.gov/pub/irs-pdf/p519.pdf . In the current edition (2009) on page 10, “How To Make the Choice,” reads:
“Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information.
” – 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, and that you choose to be treated as U.S. residents for the entire tax year.
” – The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)”
The publication provides additional information that you may find helpful.
Hope this helps!
Hi Paul. Question for you. I am planning to move to the Phils. in September. The family is already there. As far as the paperwork is concerned, do you think it is a good idea to bring all US tax returns and papers to the Phils. or leave them in the US in storage? Or would it be better to scan and email the important documents? What other paperwork is good to bring? Thanks, Gary
Hi Gary – Congrats on the upcoming move. 😉
Tax returns should be retained between three to seven years. The IRS can (but normally doesn’t) question tax returns that are 4 – 7 years old. The more complex one’s returns are, the longer one should retain a copy.
If you believe you may need your tax returns, I’d recommend a combination:
– Scan and email them and/or burn them onto a CD that you can take with you, and
– Store the paper documents for safekeeping in the USA.
This way, your originals remain safe and available if needed, you can email a copy to wherever a copy might be needed; and you can always print off a copy of whichever document you may need while in the Philippines.
When it comes to amending a prior year return, the return to be amended can only be up to three years old. After three years, the IRS closes out the tax return account and the taxpayer cannot make any changes. (As mentioned above, they can reopen the account if they have questions.)
Not knowing your situation, I can’t comment of what other documents to bring. Of course, you’d want to bring your passport, driver’s license, etc. If you think you may need more, then scan them, too.
Hope this helps. Good luck on the move.
Thanks Paul. Do you assist with tax issues for expats? If so, I would like to contact you directly. I will be in baguio. Regards, Gary
Hi Gary – Yes, I do. I’ll contact you directly, off-forum.
I know this is an old post Paul…..but the only other choice if not applying for this seems to be filing single….am I correct on this. Last year’s return was filed this way, but it seemed odd as I am not single..haha. It makes really little difference monetarily either way in my case, but it seems there are only 2 choices??
Any feedback would be greatly appreciated!
Thanks, Greg
Hi Greg – Yes, if your spouse is not a citizen or resident alien, those are about the only two choices there are.
If there is really little difference monetarily, then filing single saves a lot of hassle and is the more cost-effective choice. I’d say you’ve made a good choice. 😉
Thanks Paul…..I guess I’ll just remain single to Uncle Sam.
My plan is a little variation of this, about USA taxes, i plan to move to philippines this year, retired on a pension and and in few years, boost it with SSI, marry in philippines, and be living with my filipina wife and kids in the philippines. Can i claim them as my dependents on my USA taxes? Part of my pension, is taxed income, and the year i get married, i will be downloading part of my 457 plan into my income, another taxable event, because its defered income. Will the children qualify for the EIC, when we living there in philippines as a married family?