# US tax with foreign spouse



## barnellparis

Hi,

I'm a US citizen living in France for 25 years now and my wife is French. Until now I've been filing IRS tax returns using the "married filing jointly" option but that has a big disadvantage, which is that my wife's income is also taxed. I can claim the exemption for foreign earned income for myself but not for my wife.
What is the solution to my problem? In other words how to avoid my wife's income from being taxed by the IRS? Do I simply have to use a different status on my tax return such as "single"?
Thanks for your help.


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## BBCWatcher

The Foreign Earned Income Exclusion is also available to nonresident alien spouses electing to join a U.S. citizen in a married filing jointly return. Each spouse gets his/her own FEIE.

But you/she may be better off taking the Foreign Tax Credit (exclusively) since France generally has higher tax rates than the U.S., since you may qualify for refundable U.S. tax credits, since it may be easier without the FEIE to qualify to contribute to U.S. tax-favored accounts (such as a Roth IRA), and if you have the choice. (The IRS doesn't let you easily bounce back and forth between taking and not taking the FEIE.)


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## Bevdeforges

My take would be to look into filing as "married filing separately" which eliminates your wife's income from the equation altogether. There are some disadvantages to this filing status, though unless you crave a Roth IRA or something like that, they aren't really that much of a problem and it does keep the IRS out of your wife's finances if she has no US filing obligation. The one obvious disadvantage is that you probably won't be able to e-file your US taxes.

Be careful about switching from FEIE to Foreign Tax Credit. If you have been using the FEIE, you will be deemed to have "renounced" the FEIE and will probably not be able to use it again for five years or so. And while French tax rates appear to be higher than the US rates, the way in which the income tax is calculated in France may not work out in your favor, depending on your exact situation. (I can tell you that in my situation, the Foreign Tax Credit is completely useless, whereas the FEIE excludes my entire earned income, and the standard deduction and personal exemption wipe out any interest income I have that might have been subject to US taxes.)
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> My take would be to look into filing as "married filing separately" which eliminates your wife's income from the equation altogether.


I got the impression the original poster had already elected "married filing jointly" with his nonresident alien spouse, in which case he can only revoke that election once in his life, and thereafter he must file "married filing separately." Perhaps I'm mistaken in that impression, but that's an important thing to know about the election.

"Married filing jointly" is America's best tax filing status _in general_ due to higher standard deductions, exemptions, income limits for tax brackets, etc. Yes, it does require that both spouses share data with the IRS.

If your nonresident alien spouse has nontrivial earned income above the Foreign Earned Income Exclusion, or if your NRA spouse has substantial unearned income (interest, dividends, capital gains), or if your NRA spouse has a lot of medical expenses (and you don't), and if your NRA spouse lives in a low tax jurisdiction (i.e. there's little help from the Foreign Tax Credit), then Married Filing Separately is more likely to make financial sense for the household. Otherwise, Married Filing Jointly is probably going to be more financially attractive.


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## Bevdeforges

As I said, they should "look into it" - normally a tax adviser would run the numbers both ways to see how things shake out for the taxpayer's particular situation. There is also the question of whether or not the NRA spouse wishes to divulge their information to the IRS when they aren't obligated to do so. (One case I know of was where the NRA spouse was a civil servant, working for the tax authority in their home country!)

It also helps to determine whether or not you are, indeed, resident in a "high tax jurisdiction" for your particular financial situation. As I mentioned above, France is often considered a "high tax jurisdiction" because of the rate table for income taxes. But the actual calculation of income taxes and taking the various allowances, etc. into account, may result in your having less income tax to pay and thus to credit against a US obligation. Part of France's reputation for high taxes is based on things like VAT, wealth tax and a bunch of other things that are specifically excluded from use in the foreign tax credit calculation. I suspect the same is true for many other countries.
Cheers,
Bev


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## barnellparis

Thank you very much!



BBCWatcher said:


> The Foreign Earned Income Exclusion is also available to nonresident alien spouses electing to join a U.S. citizen in a married filing jointly return. Each spouse gets his/her own FEIE.
> 
> But you/she may be better off taking the Foreign Tax Credit (exclusively) since France generally has higher tax rates than the U.S., since you may qualify for refundable U.S. tax credits, since it may be easier without the FEIE to qualify to contribute to U.S. tax-favored accounts (such as a Roth IRA), and if you have the choice. (The IRS doesn't let you easily bounce back and forth between taking and not taking the FEIE.)


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## barnellparis

Thank you very much Bev.


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