# Do we need to file a US tax return at all?



## aelix

Hi all

My wife is a US citizen but I'm Australian, and we live in Australia. My wife has not earned more than $10,000 USD during any of the years she's lived here as I'm the sole wage earner.

Given that (a) she has stayed below the minimum threshold for filing US taxes and (b) I'm not and have never been a resident of the US, am I right in thinking my wife is not required to file a US tax return at all?

Many thanks in advance.


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## Nononymous

If $10k US is below the threshold for having to file (I'm not sure of the exact number) then no, she'd not be required to file a tax return.

If however you have joint bank accounts the total value of which exceeds $10k at any point during the year, then technically she's required to file an FBAR. I don't know how FATCA will go down in Australia, but at some point she might be identified by your bank as a US citizen, in which case it might be worthwhile doing that voluntarily. Don't be scared by the penalties, there appear to be no reports of them being assessed against "ordinary" US citizens overseas.


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## aelix

Nononymous said:


> If however you have joint bank accounts the total value of which exceeds $10k at any point during the year, then technically she's required to file an FBAR. I don't know how FATCA will go down in Australia, but at some point she might be identified by your bank as a US citizen, in which case it might be worthwhile doing that voluntarily.


Thanks for the heads-up on this... it sounds like she will have to file an FBAR. Is that a one-off filing or something she needs to do every year? And is it completely separate from the US income tax process i.e. she won't have to file a full return just to make the FBAR declaration?


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## Nononymous

Every year (unless the sum total of your joint accounts never exceeds $10k) and it's completely independent of tax returns, so no, you needn't bother with the IRS. You might want to consider back-filing previous years' FBARs, or just not bother. Rumour has it they're pretty lenient, since while this law was on the books for years, nobody seemed to know about it or bother until recently.


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## Bevdeforges

Just one caveat here - the threshold for filing under the "married, filing separately" category is closer to $3500 than to $10,000. If she has the equivalent of $3500 in income during the year, she is technically supposed to file, even if there are no taxes due.

As Nononymous says, the FBARs are a separate requirement, and include accounts held in joint name (though as her NRA spouse, you do not need an ITIN - she can just indicate "NRA spouse" on both the tax and FBAR forms). 

One thing that is not too clear in the rules is how to split the income that results from jointly held accounts. Some folks would insist that it's 50-50, but there is an argument for splitting the income from the accounts in proportion to the contributions of each partner - so with you as sole breadwinner, it could be argued that the interest or other income accrues to you, thus holding her under the filing threshold.
Cheers,
Bev


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## DavidMcKeegan

I think the smartest thing to do with the FBAR's is to report the full balance of the account. Even if it is a joint account, and you are not the primary provider, you should report the full balance to eliminate any doubt in your mind (if you would like, there is a line where you can say it is a joint account, etc).

It is not like you are taxed on the FBAR balances, so you might as well over-report, than risk getting "caught" under-reporting. 

Bev is also right about the threshold being lower for those who are Married and filing Separately (roughly $3900). 

Another thing to make note of is that threshold drops even lower if you are considered self employed. If you are self employed, then you must file a US return if your income is above ~$400.

Hope this helps!


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## maz57

As usual, the filing threshold is clear as mud;

http://www.irs.gov/uac/Newsroom/Inf...ens-or-Dual-Citizens-Residing-Outside-the-U.S.

FS 2011-13 says "applicable exemption amount PLUS the standard deduction" is the threshold for those living abroad. That makes sense because that would always result in zero balance due.


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## Bevdeforges

maz57 said:


> As usual, the filing threshold is clear as mud;
> 
> http://www.irs.gov/uac/Newsroom/Inf...ens-or-Dual-Citizens-Residing-Outside-the-U.S.
> 
> FS 2011-13 says "applicable exemption amount PLUS the standard deduction" is the threshold for those living abroad. That makes sense because that would always result in zero balance due.


Don't misread that - in that context "exemption" refers to the personal exemption only (for the relevant taxpayer category, single, MFJ, MFS, etc.). The FEIE is an "exclusion" not an exemption. 

The MFS category is a distinct exception to the general rule that the filing threshold should be the exemption plus the standard deduction. 
Cheers,
Bev


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## ForeignBody

aelix said:


> Thanks for the heads-up on this... it sounds like she will have to file an FBAR. Is that a one-off filing or something she needs to do every year? And is it completely separate from the US income tax process i.e. she won't have to file a full return just to make the FBAR declaration?


FBAR has to be done on-line. You will find everything here: BSA E-Filing System - Welcome to the BSA E-Filing System


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## maz57

@Bev. I understand your point about the FEIE; there's a common misconception out there that you don't have to file until you hit the 97K exclusion amount. But that's wrong. Foreign wages must be included in gross income for the purpose of determining whether one has to file even though that income will later be "excluded" on the 1040.

But from my reading of that fact sheet (which is specifically directed at those who live abroad) one is allowed to add the applicable standard deduction to the regular filing threshold for for one's filing status in order to determine whether one has to file.

So by my calculation, for those who live abroad, the filing threshold for MFS would be $10,000 (3900 personal exemption + 6100 standard deduction). The filing threshold for Single would be $16100 (10000 exemption + 6100 standard deduction). (2013 numbers).

I suspect the IRS did this to avoid a flood of zero balance returns wasting everyone's time.

If I've got this wrong, I'd be interested in your explanation. I did it that way for years and never a peep out of the IRS.


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## DavidMcKeegan

Even though you wouldn't owe any taxes if you're income is the minimum threshold+ the standard deduction, you should still file. The IRS can be pretty strict when it comes to the filing thresholds, especially for those who are MFS (as the standard deduction is not guaranteed with this status).

As such, I wouldn't risk it, if your income is above $3900..file the return.


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## Bevdeforges

Frankly, the IRS doesn't actually have that great a view of what us overseas residents have in terms of income, so if you're just a bit above the filing threshold, chances are they won't bother to check (if they even know you are over).

The filing thresholds are as follows:

Single $10,000
Married filing jointly $20,000
Married filing separately $3,900
Head of household $12,850
Qualifying widow(er) with dependent child $16,100

The personal exemption is $3900 per person. Don't know where you're getting a $10,000 exemption for single. That's $3900 plus the standard deduction of $6,100, which gives me the $10,000 filing threshold exactly. 

MFJ is 2*3900 plus $12,200 standard deduction or $20,000

It's only the MFS that is considerably less than the exemption plus standard deduction. And that's because they suspect those of us filing separately of hiding income via our spouses.

What is the law vs. what you can get away with are two entirely different things in the world of taxes.
Cheers,
Bev


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## maz57

Sorry Bev, I had a senior moment there. I don't know where I got that $10,000 exemption for single either! Duh, I hate it when that happens! 

But if you believe that fact sheet for those who live abroad, the filing threshold for MFS would be the same as for single-$10,000. So FS 2011-11 directly contradicts Pub. 501 where the threshold for MFS is listed as $3900. Which is right? Beats me, but I went with the fact sheet because it worked out better for me. As I mentioned previously the IRS hasn't been in contact, but the SOL still has another year to run!

I predict I never hear from them again.


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## aelix

Thanks to everyone for their input thus far. It's been enlightening and confusing 0_o

I'm in an awkward position because my wife earned a small amount of money (generally $3,000-4,000 USD per year) which depending on applicable exchange rates at the time might in some cases have been over the "married filing separately" threshold. The one year that she earned closer to $10,000 USD we weren't married so again it's a close call and not really clear either way.

I'm not keen to file if we really don't have to as I have enough paperwork on the go already with my green card application and some other stuff. I don't believe there's any prospect of the IRS finding out about my wife's earnings and she definitely won't owe any taxes, but I don't want to create obstacles to my green card process.


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## BBCWatcher

Just to add another interesting dimension, at relatively low incomes and with Australian tax rates it's possible, even likely, she'll want to file in order to collect U.S. refundable tax credits (a.k.a. free money) and/or rack up excess Foreign Tax Credits (which can offset future possible U.S. taxes). For example, the deadline to collect the 2010 tax year Making Work Pay refundable tax credit (of up to $400) is rapidly approaching: April 15, 2014 (to be safe) or June 15, 2014 (with the proper overseas residence statement and perhaps an argument with the IRS). Though I don't remember if Married Filing Separately (MFS) filers can collect that one. Other possible refundable tax credits include the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC). Do not take the Foreign Earned Income Exclusion (FEIE)/Foreign Housing Exclusion (FHE) if you intend to try to qualify for these refundable tax credits.

A refundable tax credit means you "pay" a negative U.S. tax rate, i.e. receive money from the IRS. This is possible in the U.S. tax code, even sometimes possible for U.S. citizens residing overseas. It's most possible (if it happens) when you have relatively low (but nonzero) amounts of earned income (income from work) and you live in a comparatively high tax jurisdiction. So I mention it because your spouse might be one of the lucky ones.

Also, I'd like to clarify the separate FBAR filing requirements. It's not just joint accounts: the $10,000 or more FBAR filing threshold applies to the total value, at any moment in time, of all foreign accounts over which she has signature authority. That includes her own accounts, joint accounts, and an employer's accounts (if she has signature authority), as examples. Moreover, you don't split account values at all when filing FBARs. They're total peak balance reports, full stop. You only split account values when calculating shares of interest income on joint accounts, and that's over on the IRS tax return side -- nothing to do with FBARs.


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## aelix

BBCWatcher said:


> Just to add another interesting dimension, at relatively low incomes and with Australian tax rates it's possible, even likely, she'll want to file in order to collect U.S. refundable tax credits (a.k.a. free money) and/or rack up excess Foreign Tax Credits (which can offset future possible U.S. taxes).


That's interesting, thanks. But in my wife's case she received a full refund for all payroll tax paid in Australia because she was under the tax-free threshold here, so I don't think there would be any claimable credits.


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## BBCWatcher

The U.S. tax code sometimes offers a negative tax rate to U.S. citizens. What you have just written is that the Australian tax code offered her a zero tax rate. That's nice, and that means she doesn't have Foreign Tax Credits (probably). But that fact does not necessarily mean she cannot collect free money from the IRS. She might qualify -- she just has to run the numbers. If she didn't file for tax year 2010, that's the first tax year calculation I'd run (with particular focus on the Making Work Pay Tax Credit) since that one is about to disappear.


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## Bevdeforges

maz57 said:


> Sorry Bev, I had a senior moment there. I don't know where I got that $10,000 exemption for single either! Duh, I hate it when that happens!
> 
> But if you believe that fact sheet for those who live abroad, the filing threshold for MFS would be the same as for single-$10,000. So FS 2011-11 directly contradicts Pub. 501 where the threshold for MFS is listed as $3900. Which is right? Beats me, but I went with the fact sheet because it worked out better for me. As I mentioned previously the IRS hasn't been in contact, but the SOL still has another year to run!
> 
> I predict I never hear from them again.


I agree that you most likely will never hear from them. To be perfectly honest, their "information gathering" regarding non-US income is extremely limited. It remains to be seen if and how they ultimately decide to use all this FBAR and FATCA information they are collecting to scrutinize returns submitted from overseas. But, reading the Bilateral Agreements they have been striking with foreign governments, it looks as if they are really targeting the high rollers, and not the little working stiffs.

However a Fact Sheet (the FS you cite) is just that, a fact sheet, published for informational purposes. The regs set the filing thresholds, though it's doubtful you'd be bothered about not filing with income in the "neighborhood" of the threshold amount unless they somehow got wind of some "substantial" taxes you were avoiding (or evading). 

The IRS is simply not as omnipotent as they would like you to believe. You plays the game and you takes your chances.
Cheers,
Bev


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