What Happens When a Non-Resident Alien Spouse Opts as Tax Resident?

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The tax laws of the USA ( Internal Revenue Code ) allows a US citizen or a resident alien to treat his/her spouse as a tax resident of the USA. This option brings in some advantages as well as some taxing consequences for the husband and wife. So, one has to carefully understand the full implications of declaring non-resident alien as tax residents. 

What happens when you chose a nonresident alien spouse as a tax resident?

The first thing to note is that the spouse will be considered as tax resident all the tax years, for which you chose your nonresident alien spouse as a tax resident. That will make your spouse liable to file tax return for all the years he/she is considered tax resident.

The second implication is that you or your spouse cannot claim under any tax treaty benefits that a non-resident alien claims .

The third notable implication is that the worldwide income of yours and your spouse will the worldwide income is taxable for US tax residents. Both of you will have to report worldwide income for the tax year.

The fourth consequence of chasing the status as tax resident is that you may NOT be able to use head of household filing status .

Lastly, your spouse, who is 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 at the time of filing a joint tax return or even at the time of filing a joint amended return on Form 1040X. You need to attach a statement, signed by both spouses, to the joint return for the first tax year for which the choice applies. It must have the following:

  1. A declaration that one spouse was a nonresident 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 that you choose to be treated as U.S. residents for the entire tax year, and
  2. The name, address, and social security number (or individual taxpayer identification number) of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

How to End the Choice To Treat Nonresident Alien Spouse as a Resident?

Well, there are four major ways in which the choice to treat nonresident alien spouses as tax residents can be ended. These are:

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

• The name, address, and social security number (or taxpayer identification number) of each spouse.
• The name and address of any person who is 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 adequate access to those records.

 

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