One of the most frequently asked questions from our expat clients is, “I just married a (German, Dutch, English, etc) husband/wife, how does this affect my tax situation?” As all American citizens bear the tax filing responsibility regardless of their current residence, marrying a non-U.S. citizen can complicate the process. Before deciding anything, the couple should at least be aware of advantages and disadvantages of different options.
After marriage, you are now given two choices when deciding your filing status. You can either file married separately or jointly. After all, if you file jointly, your spouse’s income will be taxable which may put you in higher tax brackets. But then again, the government provides couples with far more deductions and benefits. Individual cases will dictate which filing status would be more beneficial, but these following questions should be discussed.
- Which tax bracket would the combined income land in?
- Would the combined income qualify for reporting requirements such as the FBAR?
- Would the combined income affect your qualification for the foreign earned income exclusion?
Advantages & Disadvantages of Filing Jointly
- Far higher standard deduction and lower tax brackets
- Generally easier and less time consuming
- Spouse income will be taxable in the by the U.S. tax laws
- Combined income may exceed the minimum reporting requirement which may result in more reports to file
Advantages & Disadvantages of Filing Separately
- Spouse income will be not taxable in the U.S.
- Legal protection for yourself as filing separately somewhat removes you from your spouse’s wrongdoings
- Lost deduction, exemption opportunities
- Possibility of being placed in a higher tax bracket
At the end, what is recommended to an American expat married to a foreign spouse is that they, as a couple, consult with experts to weigh both options. And it is important to note that if you want to include your foreign spouse in your U.S. tax return, your spouse will have to apply for an Individual Taxpayer Identification (ITIN) using Form W-7.