# Filing US Taxes



## jasel (Aug 10, 2017)

Hi Everyone,

I'm a UK citizen/resident and my wife is an American who recently moved to the UK on a settlement visa so we can live together in the UK.

We are trying to understand the process around what we need to do in terms of her filing US taxes next year. As a US citizen she has to do this but its hard to discern from the US govt website how this works in her situation.
We have read about how I can apply for an ITIN to enable her to file and declare she is married but there seems to be different options around this process (single filing, joint filing) that result in different taxes (such as the worldwide income).

Anyone know what is the most appropriate filing process for us would be?

Thanks
Jason


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## nyclon (Apr 3, 2011)

I have moved your question to the tax forum where you should get more input.


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## Bevdeforges (Nov 16, 2007)

You and your wife should take a look at IRS Publication 54, which is for US taxpayers (i.e. citizens) living overseas. It gives you a far more detailed explanation of all the options and obligations. But the "Reader's Digest" version is as follows:

Her need to file is based on her having income in her own name that exceeds the filing threshold for her filing status. In general, this threshold is somewhere around $10,000, though given the recent changes in the US tax law that kick in for the 2018 filing, this could shift upward a bit.

Married to a "non resident alien" such as yourself, she has the option to file either "married, filing separately" or "married, filing jointly." The main issue with filing jointly with an NRA spouse is that the spouse's worldwide income must be reported and is then subject to tax. The main issue with filing separately is that the filing threshold is considerably lower and certain tax advantages aren't available to someone filing separately. OTOH, contrary to rumors one sometimes hears, there is no obligation for a spouse filing separately to declare half of their NRA spouse's income. 

The other factor to consider is that enforcement of tax filing rules is spotty at best for overseas filers - unless their wealth is notorious (hence Boris Johnson's sale of his multi-million pound home did kind of come to the attention of the IRS). 

https://www.irs.gov/publications/p54

And let us know as questions develop.
Cheers,
Bev


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## Moulard (Feb 3, 2017)

Fundamentally your wife would continue to file the same way that she has filed while living in the US. She would continue to report her global income, converted into US dollars and be liable to pay tax on that income. There are 3 primary methods to reduce the dual taxation of income that causes. 

First is the Foreign Earned Income Exclusion. This allows her to deduct the first 120k USD of foreign wages from her taxable income. Second is the Foreign Tax Credit, which allows her to claim a tax credit for the actual foreign taxes she has paid. Third is exemption by treaty which overrides US tax law.

Of the first two, which is the better approach will depend on tax rates and income profile. If her income is mostly from investments then the FEIE will be of little use. If effective tax rates are lower then the FTC will be of little use.

Also need to consider US state taxes, depending on whether or not the State still considers her to be a resident of the state, if for example she still owes property there, etc.

The other thing to bear in mind is that the US generally considers anything and everything foreign toxic. 

There can be US tax issues with things like mutual funds and foreign pension funds. Capital gains tax will also need to consider not just the capital gain, but also the currency gain on the sale. There are foreign financial account reporting obligations and the list goes on.

On to the treaty...Your wife should also read the US-UK Tax treaty and the technical memorandum that accompanies it. The memorandum is typically a simple English summary of the treaty. Watch out for the savings clause, which will allow the US to tax its citizens as if the treaty was not in force, save certain clauses.

https://www.irs.gov/businesses/international-businesses/united-kingdom-uk-tax-treaty-documents


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## jasel (Aug 10, 2017)

Thanks for the replies - certainly a complicated area.
The FEIE is interesting, seems like if my wifes salary is below a certain level she isnt subject to US taxation.

Our general concern is having to pay additional tax on our income, esp mine - ive no interest (financial, property etc) in terms of the US (my only interest is i married an American) so it doesnt seem right my UK wages would be subject to another round of taxation.
Her income we know and understand is a different proposition given she is American.


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## Bevdeforges (Nov 16, 2007)

Basically, she probably will want to use the "married, filing separately" option, which leaves your income out of the calculation altogether.

The FEIE requires her to declare her earned income (i.e. salary and salary-like income, such as from a personal business) and then "exclude" it using specific forms and lines on the basic tax form.

"Unearned income" (such as income from investments) uses the foreign tax credit to avoid double taxation - but be careful, in that the way you determine what foreign tax has been paid on so called passive income isn't as straightforward as you might wish.

The other thing to be aware of is what income information the IRS does or doesn't have available to it. Thanks to the FBAR rules, your wife should be filing an annual statement of all her foreign financial accounts (banks and investments, not credit cards and the like). The banks by and large then report said accounts, along with their year end balances to the IRS (well, not that directly, but that's the net effect). Foreign banks do NOT report earnings on the accounts, only the year end balance - and if they have asked her to sign a W-9 or other declaration of her US citizenship (and "tax residence"), be sure to check to see which accounts the bank is declaring. Some tax-free accounts are specifically excluded from this reporting under the bi-lateral agreement. It doesn't mean the individual doesn't have to declare them - but it does mean that there is no report from the bank that can be compared to the individual tax return. (Not that they seem to do that anyhow.) 

And obviously, any bank accounts or investments held back in the States will issue a standard 1099 form to report earnings for the year, both to the account holder and to the IRS.

A foreign employer doesn't report earnings to the IRS (and there is no requirement to submit any sort of "proof" of earnings as part of the tax return) unless the employer is a US government agency (like the Consulate or US military). So there is no need to fret over the pinpoint accuracy of whatever gets reported as salary as long as it's all excludable using the FEIE. A good faith effort will do.
Cheers,
Bev


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## jasel (Aug 10, 2017)

Thanks so much Bev for taking the time to explain that in such detail


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## Nononymous (Jul 12, 2011)

It will be fairly simple for your wife at first: file a return stating that her income is below the FEIE so nothing owing, maybe report a few accounts on FBAR, that's about it. Reduce the number and size of joint accounts so that nothing of yours is reported to the IRS, if that offends you.

But going forward, life will become more complex, perhaps very difficult. Some retirement investments that are tax-protected in the UK are taxable by the US. Make a tidy profit on the sale of your home, and beyond a small exemption, the IRS wants capital gains (see: Boris Johnson). God help her if she starts a business. And it's possible that she will be denied certain financial services beyond basic bank accounts, because institutions are wary of taking on US customers thanks to FATCA.

So if her affairs to do not remain simple, eventually she will need to make a decision. She can (1) attempt to stay compliant, often at great cost, either in accounting fees or monies owing; (2) acquire UK citizenship and renounce US citizenship; (3) stop filing US taxes and go off the radar, since the IRS is essentially toothless to do anything about it if she doesn't have US assets.


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## Nononymous (Jul 12, 2011)

jasel said:


> We have read about how I can apply for an ITIN to enable her to file and declare she is married but there seems to be different options around this process (single filing, joint filing) that result in different taxes (such as the worldwide income.


Unless are planning on one day possibly moving to the US (in which case your wife needs to be compliant to sponsor you) or there are significant tax savings to be had from filing jointly, do not apply for an ITIN. Don't inform the IRS of your existence if you don't need to.

Nothing specifically bad will happen, it's just generally a good idea to give them as little information as possible.


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## Bevdeforges (Nov 16, 2007)

Just to add a note to Nononymous' comments. Your wife does NOT need to obtain an ITIN for you if she files as "married, filing separately." Not having an ITIN may keep her from being able to e-file, but she can always just print off the forms and mail them in. An ITIN is only required for a NRA (non-resident alien) spouse if the spouse is being claimed as a dependent by the filing spouse - and that's not really all that much of an advantage (especially the way the tax laws have changed for the 2018 filing year). 

Even if you think you may some day move to the US, if she has been filing as married, filing separately, there is no need for the ITIN and you 'll wind up getting a real social security number when you get your green card.
Cheers,
Bev


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