US expats living overseas usually have a lot of questions about US tax return filing status with a foreign spouse. If a nonresident spouse is a green card holder, then it is definitely more advantageous to file married filing jointly with a foreign spouse. The overseas tax situation becomes more complicated when a spouse is not a green card holder or US resident for tax purposes. The Head of household filing status and Married Filing Separately are other options for American expats with a non resident spouse.
This is the latest email from one of our clients, US expats living overseas and green card holders. “I recently got married. My wife is a Chinese citizen and she is not a green card holder. We both work and earn more than $160,000 in combined income. We read your article about Married Filing Jointly if a foreign spouse is a green card holder. However, we would like to learn more about US tax return filing status as Head of Household and Married Filing Separately for US expats and whether this is a viable option in our situation.”
US overseas tax requirements and choosing US tax return filing status as Head of Household filing and Married Filing Separately with a foreign spouse.
Filing as Single and Foreign Spouse
One of the most common misconceptions among US expats is that they can file as “Single” if a foreign spouse is nonresident alien. This assumption is far from being correct because a married person cannot file as “Single”.
Married Filing Separately and Foreign Spouse
US expats can choose this filing status. However, filing as Married Filing Separately will be less beneficial due to higher effective tax rates. Additionally, US expats cannot claim many tax benefits like student loan interest deduction and some other credits.
Head of Household and Foreign Spouse
Special rules apply if US expats want to use this US tax return filing status with a foreign spouse. This filing status is more beneficial due to lower effective tax rates and higher standard deduction. For 2013, the standard deduction for MFS is $6,100, however, for head of household, it is $8,950. To file as head of household, a US expat must have paid more than half the cost of keeping up a home for the year. The expenses include rent, mortgage interest, real estate taxes, utilities, repairs , insurance on the home and food. Additionally, US expats must have a qualifying person who has been living with a taxpayer for more than half the year. Please find below the IRS chart of income tax brackets for different filing options.
|
Tax Rate |
Married Filing Separately |
Married Filing Jointly |
Head of Household |
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|
10% |
Up to $17,850 |
Up to $8,925 |
Up to $12,750 |
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|
15% |
$17,850 – $72,500 |
$8,926 – $36,250 |
$12,751 – $48,600 |
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|
25% |
$72,500 – $146,400 |
$36,251 – $73,200 |
$48,601 – $125,450 |
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|
28% |
$146,400 – $223,050 |
$73,201 – $111,525 |
$125,451 – $203,150 |
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|
33% |
$223,050 – $398,350 |
$111,526 – $199,175 |
$203,151 – $398,350 |
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|
35% |
$398,350 – $450,000 |
$199,176 – $225,000 |
$398,351 – $425,000 |
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|
39.6% |
Over $450,000 |
Over $225,000 |
Over $425,000 |
Conclusion
US expats should carefully choose the best tax return filing status as it affects the total amount of tax savings. US citizens and green card holders living overseas must take into consideration the eligibility for the foreign income exclusion, foreign housing exclusion and foreign tax credit. Americans working abroad should carefully choose the company that specializes in US taxes for expats. International tax experts at Artio Partners are here to help you.