# US tax filing thresholds



## GeneralArmitage (Jan 3, 2020)

We've just found out about the weird change which means people in the Married Filing Separately category have to file if they earn over $5 a year.

Here's the situation: dual UK/US citizen living in the UK, married to a UK citizen. Dual citizen's only income is less than $100 per year in interest/dividends from the US. No FBAR requirement as only a small UK joint bank account, well under the threshold.

I guess there wouldn't any late/non-filing penalties, as when filling out a return the income is way under the standard deduction for Married Filing Separately? Is it worth worrying about?


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## Nononymous (Jul 12, 2011)

I imagine this is not worth worrying about. Technically if the income is US source the IRS will know about it but I can't see them caring about <$100 interest when obviously no tax would be owed. No penalty for not filing in this case. Not worth getting on the radar for this, plus I thought I heard somewhere that there was a move to eventually fix this weird problem.


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## Bevdeforges (Nov 16, 2007)

Concur absolutely with Nononymous. The other "odd" thing in all this is that, as someone married to a non-resident alien (NRA) you could, if you wished, choose to file jointly with your non-US-citizen spouse. However, the IRS has absolutely no way of knowing what income your NRA spouse does or doesn't have - or if your combined incomes reach the threshold for married filing jointly. 

In any event, nothing to worry about. They aren't going to track you down (or probably even notice) if you just don't file.


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## Moulard (Feb 3, 2017)

Wondering why the filing threshold is $5? 

The filing threshold for married filing separately was tied to the amount of the personal exemption. 

When the exemption was suspended, that meant that the filing threshold for MFS would have been zero.. the consequence being that taxpayers using MFS would be required to file a US income tax return even if they had no income.

So they tweaked it a little to remove those with no effective income. 

Its also worth noting that pub 54 (a key resource for overseas filers) had the wrong amount listed on it when it was first published and this was not picked up and corrected until September 2019 - well after the filing season without extension...

https://www.irs.gov/forms-pubs/correction-of-errors-on-page-3-of-the-2018-publication-54


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## Bevdeforges (Nov 16, 2007)

The "married filing separately" threshold has always been considerably lower than the exemption amount. Although it was posted for years as $3500, there was some fine print that dropped it to $350 under certain circumstances. (Something to do with self-employment income, I think.)

The big fear with MFS has always been that couples will play the system by assigning all deductions to one spouse, while the other spouse takes the standard deduction. It's one reason they ask for the SSN of the spouse - so they can check to make sure that both spouses are taking the same elections (which is part of the game). The system never really was designed to handle US taxpayers married to non-taxpayers. There's too much of a chance someone might get away with something. <g>

Oddly enough, there are tax systems out there (at least the Dutch system) where each and every individual files separately - and where spouses can shift their deductions (say, for their children) however they like. In a household with 4 children, the parents can split the child allowances however they like as long as in total they take only the 4 kids. Then again, the Dutch don't tax their citizens who are not resident in the Netherlands, so they avoid lots of the issues that mess up the US system.


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## JustLurking (Mar 25, 2015)

Moulard said:


> Wondering why the filing threshold is $5?
> 
> The filing threshold for married filing separately was tied to the amount of the personal exemption.
> 
> ...


This $5 filing threshold is both ridiculously low and also bizarrely specific. My own pet theory is that now the personal exemption is gone, this is a consequence of the 10% lowest US tax bracket.

Below $5 of income, 10% rounds down to zero. However, 10% of the $5 filing threshold is $0.50. This rounds up to $1. And the IRS needs to collect this $1 to pay down 0.0000000001% of the federal budget deficit.


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## Moulard (Feb 3, 2017)

JustLurking said:


> Below $5 of income, 10% rounds down to zero. However, 10% of the $5 filing threshold is $0.50. This rounds up to $1. And the IRS needs to collect this $1 to pay down 0.0000000001% of the federal budget deficit.


Except of course that with the standard deduction, that figure is $12,400 so any figure below $12,405 ... (plus whatever is hiding behind the MAGIc)


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## GeneralArmitage (Jan 3, 2020)

Thanks for your help everyone! I hope they do sort this threshold out because it's a bit of a joke - surely just a line saying "$12k unless you or your spouse are itemizing" isn't too much to ask


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## Moulard (Feb 3, 2017)

With 8 filing thresholds, 2 standard deduction rates and 4 AMT exemption rates it clearly is a joke on taxpayers and not even a funny one for those of us who file without ever owing a cent.


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## GeneralArmitage (Jan 3, 2020)

Sorry to drag up this old thread by just something that's been nagging at my about this:

If my wife (the US citizen) ever has to do a tax return - for example, after selling a house she's inherited, which is possible one day - will the IRS look back at the previous non-filed years? Could it be an issue? She's still just earning the $100ish in interest and dividends.


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## Bevdeforges (Nov 16, 2007)

GeneralArmitage said:


> Sorry to drag up this old thread by just something that's been nagging at my about this:
> 
> If my wife (the US citizen) ever has to do a tax return - for example, after selling a house she's inherited, which is possible one day - will the IRS look back at the previous non-filed years? Could it be an issue? She's still just earning the $100ish in interest and dividends.


If she has only been earning small amounts, it's very doubtful that the IRS would waste time "going after" her. And, she always has the "defense" that, had she filed in those years, she would have filed jointly with you - for which the threshold is much higher (and there is little or no way the IRS would have way to know of your income in those years).

It's one of the ways in which all those "choices" you have on your US income tax returns come in handy. There is never any single "correct" way to have filed. You almost always have options.


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## Moulard (Feb 3, 2017)

GeneralArmitage said:


> Could it be an issue? She's still just earning the $100ish in interest and dividends.


Bear in mind that the $5 filing threshold for married filing was introduced as a consequence of the removal of the personal exemption as part of Trump's Tax Cuts and Jobs Act of 2017. Prior to then it was typically the exemption amount. In 2017 I believe it was $4,050. So it is quite likely that if she was only earning $100s (or even low $1000s) then she may not have had a filing requirement in the first place.


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## Bevdeforges (Nov 16, 2007)

Moulard said:


> Bear in mind that the $5 filing threshold for married filing was introduced as a consequence of the removal of the personal exemption as part of Trump's Tax Cuts and Jobs Act of 2017. Prior to then it was typically the exemption amount. In 2017 I believe it was $4,050. So it is quite likely that if she was only earning $100s (or even low $1000s) then she may not have had a filing requirement in the first place.


Married filing separately has always had a considerably lower threshold than filing as single (which, by the way, many people married to NRAs do - it's not technically correct, but it seems not to draw much attention). I believe it was something around $400 just before the big tax changes for 2017. But, there is nothing that "locks in" your filing status. It is also theoretically possible for someone married to an NRA to file as Head of Household (e.g. if they have kids they could claim as dependents). 

It's rare that someone gets "caught" for failure to file from overseas, unless there are obviously big amounts of $$$ and potential taxes involved.


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## GeneralArmitage (Jan 3, 2020)

Thanks all! Doesn't sound like a big deal, especially as she definitely doesn't owe any taxes.

What's funny is that the equivalent threshold if you are a dependent is "Your gross income was at least $5 and your spouse files a separate return and itemizes deductions" - for those whose spouses don't itemise, the threshold is the standard deduction amount. You would think that would be the same for anyone MFS, whether they're a dependent or not.


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