There is an election which a US citizen taxpayer and his or her nonresident alien spouse (i.e. non-US citizen or non-US resident) can make, whereby the spouse is treated as if he or she is also a US person, and therefore, they can file a joint US tax return, which can save on US taxes, because the tax rate for married filing jointly is lower, as the tax rate thresholds are higher.
As a simple example, let’s say the husband is a US citizen with a salary of $100,000 and US qualified dividends and capital gains totaling $20,000 for the year 2021 (for the moment, we’ll say the wife has no income and we will leave foreign considerations out of it.) If he files as married filing separately, his tax liability is $18,015. If they make the election and file jointly, their tax liability is $10,708.
If the NRA spouse does have income, it’s important to consider the effect of adding that income to the picture before making the election. The electing spouse is obligated to include worldwide income from all sources. But it could be helpful. Let’s say the US citizen husband is studying, has a small amount of wage income from teaching, i.e. $8,000 and earns approximately $40,000 in investment income. If they have 5 children under the age of 17 that are eligible for the refundable additional child tax credit, if he files as head of household, his total tax refund is $825, a little over half of the amount for one eligible child. If they make the election to file jointly and add the wife’s salary of $42,000, their total refund is $7,000, i.e. they receive the full $1,400 per child available to US taxpayers living outside of the US.
Please be aware that there are a number of additional points to consider before making this election, and it’s best to consult with a tax advisor before doing so. For example, while the election is revocable in subsequent years, once it is revoked it can never be re-elected, by either of the electing spouses. Also, the NRA spouse will be required to apply for an ITIN (US tax ID number, similar to a social security number), which will require providing certain documents of identification to the IRS, as well as filing a Form W-7 with the tax return.
