# US SS on NRA spouse filing jointly with USC



## cescolar (May 31, 2013)

I am an american citizen living in Brazil. This year I have decided to include my Brazilian wife in my taxes, and file as "married filling jointly".

I have to run the numbers, but I am guessing that since she makes little money,
with the foreign earned income exclusion she will not have to pay any US taxes and we will comeout ahead..

Since she is self employed I know that I will need to file Schedule C-EZ for her.
But since she is not elegible for Social Security, can I skip filling Schedule SE?


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## BBCWatcher (Dec 28, 2012)

That's a fantastic question. My understanding is that if she makes a Section 6013 election (agrees to file a joint U.S. return) then she's treated as a U.S. resident for tax purposes. That includes the self-employment tax if she's self-employed. There is no Social Security treaty between the U.S. and Brazil, so there is no protection there. The SE tax is also not excludable from the FEIE. Depending on the level of her self-employment income, assuming I'm correct, this might make a joint filing less attractive.

However, there is a bit of good news. If she can maintain a sufficient level of contributions into the U.S. Social Security system for a number of years (10) she would indeed qualify for U.S. Social Security benefits on her own. If she pays self-employment tax on at least $1160 (tax year 2013) of earnings, then that year will count toward the minimum 10 years required for at least some retirement benefits. Each year the minimum earnings goes up a little (for inflation), so next year (2014) it's $1200. That's her Social Security taxable earnings, not the amount of self-employment tax she pays (which is obviously lower). And it's 10 years of at least those minimum taxable earnings to qualify for retirement benefits. For other possible benefits (survivors, disability) fewer years may be required. There's also a spousal benefit which gets particularly interesting if you haven't qualified for U.S. Social Security and don't expect to.

U.S. Social Security is a very good deal if she can hit those 10 years of contributions. Past 10 years it's less of a good deal but not too bad.


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## BBCWatcher (Dec 28, 2012)

I should elaborate that I am assuming your spouse is a citizen of Brazil. Citizens of Brazil are eligible to receive U.S. Social Security benefits if they qualify, even if they are not U.S. residents. (Citizens of many other countries are as well but not every country.)


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## Bevdeforges (Nov 16, 2007)

Just a side note - at a minimum you will have to get your wife an ITIN in order to file jointly. But if she will be subject to FICA, as BBCWatcher indicates, you'll actually have to get her a SS Number in order to be able to file.

Check with the consulate on how to do that before you start filling out forms.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Actually an ITIN is acceptable for filing Schedule SE. At least the IRS seems to think so according to its Web site, though this forum is currently having issues that don't let anyone post links. Your spouse just writes the ITIN where the SSN would go.

To reiterate, please check to make sure she actually needs to pay the self-employment tax if you file jointly. I think so, but I'm not 100% sure. Also, if she does, consider whether it makes sense for her not to make that Section 6013 election and for you to file separately. That decision will depend in part on how much she values U.S. Social Security benefits and whether it's realistic that she would qualify (i.e. at least 10 years of non-trial self employment income with SE tax paid).


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## cescolar (May 31, 2013)

BBCWatcher said:


> That's a fantastic question.


Deserving of its own separate thread, right?

I had originally posted this as an reply in another thread (general-expat-discussions/81101-confused-about-irs-form-1116-foreign-tax-credit.html#post542471) Then I received an email saying that you had replied to it. I clicked on the link and found not only that your reply was not there, but mine was also gone!

I was perplexed for a moment! 

The I figured that I should search all your posts, and BINGO! I found that you have moved my reply to a new post!

I think this is a bug in the forum software: it should have notified me the right location of the reply! (Unless you replied first and then moved the reply after the email had been sent...)

Anyway, I am impressed that you found my question fantastic! 
I agree: this could be very useful for many readers of this forum! It could save us a lot of money, but there are many issues to deal with...

I was not so lucky with the question that I possed in the thread: 221369-avoiding-all-us-taxes-permanently-legally-while-living-abroad-us-citizen-2.html
I was surprised that nobody gave an answer as to why the foreign tax credit is calculated that way and what can be done to get that money back...


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## cescolar (May 31, 2013)

BBCWatcher said:


> My understanding is that if she makes a Section 6013 election (agrees to file a joint U.S. return) then she's treated as a U.S. resident for tax purposes.


How about having to file her own FBAR? In the FBAR instructions in http://www.fincen.gov/forms/files/FBAR Line Item Filing Instructions.pdf it says that US Persons must file and then define the term as:

_United States Person. United States person means United States citizens; United States 
residents; entities, including but not limited to, corporations, partnerships, or limited liability 
companies created or organized in the United States or under the laws of the United States; and 
trusts or estates formed under the laws of the United States. Financial Crimes Enforcement Network
BSA Electronic Filing Requirements for the Report of Foreign Bank and Financial Accounts 
(FBAR) (FinCEN Report 114) 49 
Note. The federal tax treatment of an entity does not determine whether the entity has an FBAR 
filing requirement._

Since the FBAR is for FinCEN, not the IRS, I read that to mean that she would not have to file the FBAR. Do you agree?

She would, of course, disclose all her accounts in a 8938. (When are the IRS and FinCEN gonna get their act together and have the IRS send FinCEN the 8938 info and abolish the FBARs?  )


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## cescolar (May 31, 2013)

BBCWatcher said:


> Actually an ITIN is acceptable for filing Schedule SE. At least the IRS seems to think so according to its Web site, though this forum is currently having issues that don't let anyone post links.


Now that has been fixed and you can post links again. Could you please post the link where you found that? Thanks!


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## cescolar (May 31, 2013)

BBCWatcher said:


> Section 6013 election (agrees to file a joint U.S. return) then she's treated as a U.S. resident for tax purposes.


I read in section 6013 (g) (in 26 U.S. Code § 6013 - Joint returns of income tax by husband and wife | LII / Legal Information Institute) that:
_(A) for purposes of chapter 1_. What chapter 1 are they talking about?

It sounds to me that if you make this election, then anywhere in the tax code where it says "a US person" it now applies, right? So that includes the ability to claim the Foreign Earned Income Exclusion (FEIE), right?

If that is true, then there would be no double taxation with regard to her earned income and the FICA taxes would probably be a good investment if she would eventually be able to get a Social Security pension.

So things seem fair with respect to earned income.

I still cannot figure out why the IRS does not let you deduct all the foreign taxes paid for un-earned income, but uses a ratio of total un-earned income to foreign. So the more you get in the US the more you can deduct from what you make abroad...that does not make any sense to me...(i.e. does not seem fair - if you just have foreign un-earned income then you get double taxation)


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## BBCWatcher (Dec 28, 2012)

The IRS indicates that either an ITIN or a SSN are acceptable for paying the SE tax here.

No, a Section 6013 election does not subject the non-resident alien spouse to FBAR or any other non-tax U.S. government obligation such as Selective Service registration. The NRA spouse is subject to FATCA, yes.

Yes, with a Section 6013 election all tax provisions apply including the FEIE/FHE except for tax treaty provisions that are based on foreign residence. The NRA spouse filing jointly cannot simultaneously claim the benefit of a tax treaty provision if that benefit is tied to living overseas. Note that a tax treaty is not the same as a Social Security treaty.

If I understand your FTC observation correctly, the U.S. gets to tax its U.S. source income first, and it does so. Normally you would then claim that U.S. tax on your foreign tax return as a tax credit for that particular income.


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## Bevdeforges (Nov 16, 2007)

I think what cescolar may be referring to is the fact that the way they make you figure the FTC pretty much assumes that you apportion your foreign taxes paid over your entire US income, to determine what percentage applies to the "passive" income.

In some countries, passive income is taxed separately and often at a fixed rate, plus your salary income may be subject to various reductions before you arrive at the "taxable income" that you put on your foreign tax return. That really throws a monkey wrench into the calculations (as I understand them - have not had to claim FTC for a LONG time now). 

No, the way the system works isn't "fair" - though what's "fair" is usually subject to multiple interpretations. 
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

True, but it's at least very hard to pay more than your marginal U.S. income tax rate or your marginal foreign income tax rate, whichever is higher. That's a _reasonably_ "fair" outcome.

....Or at least there are bigger fairness problems in the tax code. Mitt Romney and General Electric are probably a couple representative examples.


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