Filing US Taxes from UK

Hi,

I am a UK citizen married to a US citizen, and we are both living in the UK. It is the time of year when my wife needs to file her US tax return from the UK for the first time, and we are both very confused as to how to go about it!

Firstly, we are confused about the married filing seperately or married filing jointly, and which option is best for us. The married filing seperately option seems to be the easiest, but it appears that my wife would miss out on a number of perks, related to her student loans and grants.

If we were to file jointly, how would we go about doing it, as I have never lived or worked in the USA. Do I need to declare my income, and if so am i likely to have to pay taxes in the US on it? obviously I pay tax in the UK and dont want to have to pay any more tax to the US. Can you exclude foriegn earned income?

Just for a bit of background, my wife has lived in the UK since june 2011, and only earned about $2500 in the US last year. I earned around $40-45000 in the UK last year.


Any information or help would be very much appreciated! thanks

I'm not sure how your wife wife would:

"miss out on a number of perks, related to her student loans and grants". It's her perks.

If you file as MFJ, then you would be treated just like her and would disclose your worldwide income. She could get you an ITIN and then claim you as an exemption. I think it's about another $3,500 of tax relief. It comes down to individual circumstances and you might want to see how it works out under several permutations. At the end of the day I would take the most simple method, but the one that shows you owe $0.

Don't forget the FBAR. If you have joint accounts I'm not sure if you would need to sign as a none U.S. Citizen/Green Card holder. I hear that some NRA spouses refuse to sign a "foreign" form of this nature, so I don't know what the possible repercussions might be.

If you file as MFJ, then you would be treated just like her and would disclose your worldwide income. She could get you an ITIN and then claim you as an exemption.

FYI if she files separately she can still take her husband as an exemption as long as he has no US income and can't be claimed as a dependent on another return.

Page 14 of
http://www.irs.gov/pub/irs-pdf/i1040.pdf

Line 6b Spouse
Check the box on line 6b if either of the following applies.
1. Your filing status is married filing jointly and your spouse cannot be claimed as a dependent on another person’s return.
2. You were married at the end of 2011, your filing status is married filing sepa- rately or head of household, and both of the following apply.
a.Your spouse had no income and is not filing a return.
b. Your spouse cannot be claimed as a dependent on another person’s return.

Also remember that your wife has to include her worldwide income on the US 1040 tax return not just the $2500 she earned in the US last year. Also foreign pension funds, ISA's, investments and interest from bank accounts, have to be dealt with. They may well result in no US tax bill, but they are US taxable. If the accounts go above above $10k she has to file an FBAR form which is pretty easy, just details of the accounts. Then there's another informational form required (FATCA form 8938) if the accounts get above a few hundred thousand dollars.

"If you file as MFJ, then you would be treated just like her and would disclose your worldwide income. She could get you an ITIN and then claim you as an exemption." Didn't add the MFS bit on then end, thanks for clarifying -)

A good point re the 8938 and FATCA, this will have an impact on more and more people. You need to check your circumstances, as reporting can be as low as $50K/$75K. FATCA will have massive day to day implications for USC and GC holders in the U.K from 2013, but that's for another thread.

A good point re the 8938 and FATCA, this will have an impact on more and more people. You need to check your circumstances, as reporting can be as low as $50K/$75K. FATCA will have massive day to day implications for USC and GC holders in the U.K from 2013, but that's for another thread.

Those lower limits are for US residents. At least the IRS was sensible enough to up them for non-residents.

As far as the OP's original question I think MFS is probably the way to go as it sounds like a fairly simple return and my attitude would be to keep things simple. Why should the husband have any dealings with the IRS if not entirely necessary.

Thanks for the replies, and sorry if i sound a little dumb here!

In terms of the benefits for my wife i was talking about, she would usually be entitled recieve a refund for interest on her student loans, but apparantly she wont get that if we file seperately?

This is why we considered filing jointly, but it seems it may be too much hassle. Plus, i dont want to pay tax to the USA despite never working there!

one more thing, we plan on relocating to the states in a couple of years, is filing jointly looked upon favourably in any way be the immigration authorities

Thanks again!

In terms of the benefits for my wife i was talking about, she would usually be entitled recieve a refund for interest on her student loans, but apparantly she wont get that if we file seperately?

Can you explain this a bit more, it sounds a bit weird

This is why we considered filing jointly, but it seems it may be too much hassle. Plus, i dont want to pay tax to the USA despite never working there!

You probably wouldn't have to pay US tax because you'd get credit for UK tax paid. However, the US has strict and punitive laws about investing in certain overseas accounts so I would strongly advise you to avoid the US tax man until completely necessary so you keep your full ability to invest in UK accounts. FYI do you own any joint bank accounts, ISAs etc with your wife? They can be tricky areas.

one more thing, we plan on relocating to the states in a couple of years, is filing jointly looked upon favourably in any way be the immigration authorities

Thanks again!

The IRS is not allowed to share information with other US agencies so how you filed your taxes won't have any baring or your immigration.

I think he is talking about deducting the interest on your student loans.

You can claim the deduction if you file as single OR as jointly married but not married filing separately.  No, I don't know why.

It all depends on your situation though because it looks like the student loan interest deduction is changing in 2013.

Thank bookgrl, thats what i meant! sorry for any confusion, i am completely new to this tax situation!

My wife usually efiles from the USA, is it possible to efile now she is living in the UK?

If not, what paper forms does she need to fill in for her to file seperately? She didnt actually work in the UK last year, and we dont have any joint accounts or investments etc

Thanks for all the help!

FYI if she files separately she can still take her husband as an exemption as long as he has no US income and can't be claimed as a dependent on another return.

Page 14 of
http://www.irs.gov/pub/irs-pdf/i1040.pdf

Line 6b Spouse
Check the box on line 6b if either of the following applies.
1. Your filing status is married filing jointly and your spouse cannot be claimed as a dependent on another person’s return.
2. You were married at the end of 2011, your filing status is married filing sepa- rately or head of household, and both of the following apply.
a.Your spouse had no income and is not filing a return.
b. Your spouse cannot be claimed as a dependent on another person’s return.

I found this not to be the case when I filed my taxes this year.

I lived and worked in the US until December 2011, at which point I moved to the UK on my spouse visa. I did not work at all in the UK in 2011. I filed married filing separately because my husband is a UK citizen who has never lived or worked in the US. For his social security number, I just wrote "NRA." I assumed since he met the requirements for line 6b in the requirements quoted above that I can claim him as a dependent. Then when my refund came it was less than half my expected amount. According to the "Where's my refund" website and the paper documentation the IRS sent me, the reason they adjusted my refund was "Each dependent listed on your tax return must have a valid Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). For one or more of your dependents the SSN or ITIN was missing. As a result, we didn't allow one or more of your exemptions."

Ok, fair enough, I thought. But I was unable to claim a deduction for the interest I paid on my student loans because I filed "Married filing separately." Had I been able to file either "single" or "married filing jointly" I would have been able to claim this deduction. I feel like the IRS has screwed me over for marrying a non-resident spouse. It seems like they don't want to acknowledge that I have a spouse (not being able to claim him as a dependent), but my marriage status prevents me from getting the student loan interest paid deduction.

Is it worth calling the IRS to argue the toss and see if I can now claim the student loan interest paid deduction that I had omitted from my form initially because of filing status? Is there any way I can file "single"? Or "married filing jointly" but not have to get my husband an ITIN or give them his financial information? And if either of those filing statuses are possible, is it possible to change it after having filed?

I'm annoyed because I could really use that money to help pay the bloody loans.

No, you can't file as single because you're not, and you can't file jointly without an ITIN or SSN. It sucks, but that's just how it is.