# Tax queries for US citizen and NRA spouse living in the UK



## MrNovember (Feb 28, 2015)

Hi all, 
What a helpful forum this is! My wife and I found it this weekend and are really grateful for the info on here.

We are currently in the process of applying for my US Green Card and need to sort out a few tax filing issues asap. My wife is dual citizen of the UK/US and I'm a UK Citizen. Unfortunately, we've realised that her accountant missed a few things on her US taxes and we're trying to remedy these as the Embassy will want to see the last three year of taxes as part of my GC interview.

We have a handful of questions which we've been researching but seem to find different answers online. We hoped some of you might be able to help clarify these for us. Our apologies if some of these have been answered elsewhere. 

So here goes....
- Must the foreign earned income be calculated from Jan-Dec for each year? We're in the UK where the tax year is April - March. Must we therefore go through and re-calculate earnings for the US tax year?

- Does UK tax get deducted from the foreign earned income that I report (so if earnings were say £40,000 but tax was £6000, what do we report as foreign earned income - £40k or £34k?)? 

- Where can we find the exchange rate to amend returns for 2012 and 2013, and what's the rate for 2014 (GBP to USD)? (my wife's accountant left out her foreign income so she has to amend the last two years, oops!)

- For spouses, can the annual foreign earned income be combined? Say one spouse earns $40,000 and the other $150,000 (I wish!) would that mean the couple were still under the combined exclusion, or would the higher earning partner be taxed by the US for going over the exclusion? (we're pretty sure the per person total is doubled for a couple but just want to make sure this is correct)

- Is the Housing Exclusion only permitted if your employer indicates some of your salary is specifically for Housing? Or can anyone exclude rent abroad if they qualify for the foreign income tax exclusion?

- Do people generally find it better to claim as Married Filing Separately or Jointly? Or is this just too case by case to say? We're nervous about having enough time to get an ITIN at this late stage given my green card interview should be within the next few months. So we're pretty sure we'll file her as Married Filing Separately at this stage

- Any suggestions on the best free filing software for nonresident citizens? We've seen the IRS links but weren't sure if you all had any ideas of the best software for situations like ours

Any help would be tremendous. Thanks so very much!


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## Bevdeforges (Nov 16, 2007)

MrNovember said:


> So here goes....
> - Must the foreign earned income be calculated from Jan-Dec for each year? We're in the UK where the tax year is April - March. Must we therefore go through and re-calculate earnings for the US tax year?


Yes. The US tax year is Jan - Dec.



> - Does UK tax get deducted from the foreign earned income that I report (so if earnings were say £40,000 but tax was £6000, what do we report as foreign earned income - £40k or £34k?)?


No - you report your gross income before any deductions for taxes or social insurances. So GBP 40,000.



> - Where can we find the exchange rate to amend returns for 2012 and 2013, and what's the rate for 2014 (GBP to USD)? (my wife's accountant left out her foreign income so she has to amend the last two years, oops!)


Yearly Average Currency Exchange Rates - or you can use any published rate


> - For spouses, can the annual foreign earned income be combined? Say one spouse earns $40,000 and the other $150,000 (I wish!) would that mean the couple were still under the combined exclusion, or would the higher earning partner be taxed by the US for going over the exclusion? (we're pretty sure the per person total is doubled for a couple but just want to make sure this is correct)


No. For the FEIE, each spouse takes their own exclusion (and files their own 2555. But, if you were a NRA (non-resident alien) for the prior years, you don't need to file at all. Your wife could file as married, filing separately and just leave off your income entirely.



> - Is the Housing Exclusion only permitted if your employer indicates some of your salary is specifically for Housing? Or can anyone exclude rent abroad if they qualify for the foreign income tax exclusion?


For that one I'll have to leave you to those with more experience in this area.



> - Do people generally find it better to claim as Married Filing Separately or Jointly? Or is this just too case by case to say? We're nervous about having enough time to get an ITIN at this late stage given my green card interview should be within the next few months. So we're pretty sure we'll file her as Married Filing Separately at this stage


Married, filing separately is the "expected" approach. (Per one of the IRS information sheets.) Filing jointly when one spouse is a NRA is an election. Generally speaking, filing separately is the "fast and dirty" approach. You lose a few options, but you avoid having to report the NRA spouse's worldwide income at all.


> - Any suggestions on the best free filing software for nonresident citizens? We've seen the IRS links but weren't sure if you all had any ideas of the best software for situations like ours


There are only about 8 of the free filing software in the IRS program that work for overseas filers. But these all have income restrictions, and in some case age restrictions. Go directly to the TaxAct site where they have a free version available to everyone regardless of income or age. (Am told that TaxSlayer may have something similar. If so, go directly to their site - not through the IRS Free File section on the IRS website.)

Let us know as any further questions come up.
Cheers,
Bev


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## MrNovember (Feb 28, 2015)

Thanks so much Bev, that's extremely helpful! We're off now to calculate her salary Jan-Dec  Oh joy!


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## MrNovember (Feb 28, 2015)

Hi all, just wanted to check as we're sending the previous foreign earnings on to be filed with amendments for the last two years. Is there possibility of a fine/fee? My wife was well within the foreign earned income exclusion but we just want to brace if there's any chance of a fine for the late information. We have a lot of American friends who filed years' worth in one go, and they weren't fined so we're hopeful there's nothing to worry about here.


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## Bevdeforges (Nov 16, 2007)

Any fines and penalties are based on a percentage of the taxes owed. If all your wife's earnings were salary and thus fell under the FEIE, then any % of 0 is still 0.
Cheers,
Bev


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## MrNovember (Feb 28, 2015)

That makes sense  Thanks!


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