When May a Nonresident Spouse Be Treated as a Resident by the IRS for Tax Purposes?
Learn when a nonresident spouse may be treated as a resident by the IRS. Sacramento CPAs explain when a nonresident spouse may be treated as a resident for tax purposes by the IRS, and the effects of this decision.
In tax terminology, the word “alien” refers to a person who is not a U.S. citizen. If an alien meets the Internal Revenue Service’s substantial presence test or green card test, he or she will be classified as a “resident” alien. Otherwise, the individual will be classified as a “nonresident” alien. This distinction is important for taxpayers, because residents and nonresidents are subject to different tax requirements. For example, resident aliens are taxed on both domestic and foreign-earned income, whereas nonresident aliens are taxed only on income from the United States. However, a taxpayer’s status is not necessarily set in stone, as IRS rules permit married nonresidents to be treated as residents. Our Sacramento CPA firm explains how this is accomplished, and what tax consequences may result.
IRS Requirements for Your Nonresident Spouse to Be Treated as a Resident Alien
If you are a nonresident alien who is married to a resident alien or U.S. citizen, you may wish to be treated as a resident alien for tax purposes. Likewise, your spouse may wish to be treated as a resident if he or she is the nonresident, and you are the citizen or resident alien.
Regardless of whether you or your spouse is the nonresident, changing one’s status from nonresident to resident is relatively straightforward. To request that the IRS treat you or your spouse as a resident for tax purposes, you and your spouse must both sign, and attach to your joint tax return, a statement containing both of the following:
- Contact information for both you and your spouse, including your names, your address, and your taxpayer identification numbers (TINs). Examples of TINs include Social Security Numbers (SSNs) and Individual Taxpayer Identification Numbers (ITINs).
- Specification that (1) you or your spouse is choosing to be treated as a resident for the entirety of the tax year, and (2) on the final day of the tax year, you were a citizen or resident while your spouse was a nonresident (or vice versa, where applicable).
This is how most taxpayers communicate their intent to the IRS. However, as an alternative, you may also indicate your decision by filing a joint amended return using Form 1040X (Amended U.S. Individual Income Tax Return). Your Form 1040X must be filed either (1) within two years of the date you paid income tax for the relevant year, or (2) within three years of the date you originally filed your federal income tax return – whichever date occurred later. Keep in mind that, if this is the method you use, you will be further required to amend all tax returns filed after the year in which you made the decision concerning you or your spouse’s status.
What Happens if a Nonresident Chooses to Be Treated as a Resident for Tax Purposes?
There are several tax consequences when a nonresident alien elects to be treated as a resident by the IRS, affecting not only the documentation you and your spouse must submit, but also the income you must report, as well as the benefits you may claim. Before you make such an impactful financial decision, you should discuss your family’s situation with a Sacramento tax accountant from Cook CPA Group. Our experienced tax preparers can sit down with you to discuss your financial concerns in detail, and make a determination as to whether choosing resident status would be beneficial for you and your spouse. If you or your spouse does choose to be treated as a resident, be prepared to comply with the following IRS rules:
- With regard to income tax, both you and your spouse will be treated as residents for every year your decision is in effect.
- You and your spouse will be required to submit a joint income tax return for the year the choice is in effect.
- You and your spouse will be required to disclose global income to the IRS on your joint tax return. Note that failure to report foreign income may expose you to costly penalties for noncompliance with the Foreign Account Tax Compliance Act (FATCA) and other tax regulations. You may be required to file an FBAR, file Form 8938 (Statement of Specified Foreign Financial Assets), and/or other tax documents.
- You and your spouse will lose the ability to claim certain tax treaty benefits, though exceptions may apply, depending on the situation.
Sacramento CPAs Providing Tax Preparation Services for Citizens and Residents
Determining your alien tax status – and understanding the requirements you are subject to as a result – is critical to ensuring compliance with tax laws, particularly in cases where either spouse has foreign income or assets. If you are a U.S. citizen or resident alien, but your spouse is currently a nonresident alien, you should discuss your situation with an experienced accountant. Depending on your circumstances, it may be prudent for you or your husband or wife to choose to be treated as a resident.
For a free consultation concerning alien tax status, income reporting requirements, or other tax matters, call Cook CPA Group at (916) 432-2218. Our California accounting firm provides tax preparation services in Sacramento, Roseville, and the surrounding area.