Help - Forms to File? Also income based repayment tax obligation student loans?

Hi,

I am asking on behalf of my missus in terms of what needs to be filed.

Since she moved here in 2005 (UK) she wasn't aware that she had to file because she was at Uni, and she became a British Citizen in 2009.

She has had odd jobs, but only this year will have earnt a significant amount (about £3,000) - from researching on the web, it says she needs to let the IRS know about this.


I am assuming she needs to file FBAR (bank account notification) online through the BSA e-filing system? and then fill in form 1040?

If we fill in previous tax returns and send them to the IRS, do you think they may charge penalties at all for previous non-submission? We would be filing as married, separate as I am not a US citizen.

Sorry for all the questions, just want to get it all right!

Also, she has student loans coming into repayment that she is putting into a 25 year plan, but then apparently what is left outstanding is taxable as income by the IRS. Does anyone know of a tax calculator on the web, so I can guesstimate how much that would likely be?



Saj

If she didn't make over the filing threshold she doesn't have to file, so no need to go back to the older ones. She only needs to do FBAR if she has her name on accounts that in total go over $10,000 at any point in a given year (eg if she has two accounts and one has $5500 while the other has $4600). Student loans aren't taxable income.

Thanks DrSuperL99 for the info on tax returns!

In terms of her student loan, it isn't taxable at the moment, but she is planning on applying for the income based repayment loan option for her Federal loans, which means she has to certify her annual income every year and they work out a monthly repayment based on that, rather than the original loan terms. At the end of 25 years, the US government writes of the outstanding balance, which then becomes taxable.

That's the bit I am a little worried about, because say if she paid off $80,000 and still had $40,000 outstanding, then I was wondering how much as a percentage the IRS would likely calculate tax for?

Wait, is it the Income Based Repayment or the Income Contingent Repayment? IBR doesn't get taxed, ICR could be. However, there really is no way of knowing what she could expect to pay in tax in 25 years! Best bet is to try paying it off!

You don't need to file FBAR if your accounts are less than $10k. Your wife may not have to file US taxes if he has very little income, but it's probably best to do so anyway so tht if things change she doesn't forget or miss anything.

I have a more general point. It is good that your wife will be filing Married Separately, but why are you asking these questions rather than her. Non-US spouses married to US citizens should stay well away form their spouses taxes and finances. Please get her to do this stuff and don't be tempted ever to file jointly. You should also look at how your finances are arranged so that you avoid any entanglement with the IRS.

Hi there,

I take Nuns point about getting the US citizen to do some enquiring for themselves, but I do not see what would be wrong with a UK spouse helping a wife with finding out some info on filing and what to put on the form.  My wife for example is a US expat but has found getting her head around it all very difficult so I help her best I can with her 1040/2555 FBAR etc and finding out useful information online. Some of the filing stuff appears to be insanely complicated and the penalties are very high for doing it wrongly so I don't blame any concerned husbands from helping out.

I can see you perhaps taking care as to your finances being arranged to protect your personal assets from your wifes IRS debts should she have any (if that is what Nun means).  Generally having your own personal bank accounts for your own money is probably a good thing. Maybe Nun can clarify.

Regarding the IBR point and filing. Currently the IBR 'forgiven' balance I understand will be taxable after 25 years.  However I hear that they are working hard on removing this issue as it would seem to be a penalty.

Also regarding joint filing.  Nun may have reasons for telling you not to which I am unaware of. However bear in mind if you file jointly then your income will be used in addition to your wife's income when deciding the IBR monthly payment amount.  You probably do not want this to be the case as in a lot of cases it will mean she is excluded from affordable monthly payments because of your earnings.  My wife is on IBR and I would not file jointly with her for that reason alone (plus I have no other reason to do a US tax return anyway).

Hi there,

I take Nuns point about getting the US citizen to do some enquiring for themselves, but I do not see what would be wrong with a UK spouse helping a wife with finding out some info on filing and what to put on the form.

I just re-read my post and it comes off as a bit terse. I see nothing wrong in helping a US spouse with taxes, but the US spouse must be involved and is probably better placed to ask questions.

I can see you perhaps taking care as to your finances being arranged to protect your personal assets from your wifes IRS debts should she have any (if that is what Nun means).  Generally having your own personal bank accounts for your own money is probably a good thing. Maybe Nun can clarify.

I'd encourage non-US spouses to keep their finances separate from their US-spouse to avoid the complications of US tax filing. Holding joint bank accounts, ISAs or investment accounts will require them to be included on the US spouse's taxes, even if they file separately, indirectly opening up the UK spouse to some complicated and draconian taxation.

Hi Nun,

Sounds like good advice, I hope you don't think I was calling you out earlier, just my twopence worth, I think you are very experienced and have read a lot of your posts. In fact your last post has made me think of a question actually.  From a personal point of view myself and my wife have only one joint account which we opened to pay in some joint wedding cheques. It has under £500 in it. We have seperate accounts otherwise. The joint account did not pay any interest in 2011 but we put it on her FBAR.

Assuming it paid any (miniscule) interest in future, on the 1040 as it is a joint account would you divide the interest by two before declaration? Unless we pay anything more into it the interest will likely be under $1 and therefore de minimis but hypotehtically I am not sure the answer to the question with joint accounts.

Also I noticed that on the HR block software my wife uses, the schedule B produced in the PDF does not list the bank accounts individually, the interest earned is shown on the 1040 though. The cumulative interest was under $100 so maybe that is why.  Most of that had already been taxed in the UK but I think because it was easily covered by the personal exemption the software put it on there rather than doing a 1116 form.

 

Hi all,

Thanks so much for your help with this it is really very much appreciated! 

Just to clarify - the reason that I am asking rather than my spouse is that financially speaking currently, I am the savvier one, and also responsible for the bills at the moment, and she has just finished her PhD studies. She has asked me specifically to help her out with this, as I am good at wading through regulations, and am keeping her in the loop about everything learnt - she will be completing the tax return on her own though as I agree it is important that once everything is caught up she takes responsibility for her own tax affairs. We have completely separate bank accounts so that isn't a problem.

Also to give an update on the student loans - for some of her loans she has now entered the Special Direct Consolidation programe under income based repayment. Still trying to convince Sallie MAE student loans that the rest of her loans should be included under it too (but that is another story).

I think in terms of FBAR it is only really this year that she has earned around $10,000 from part-time work. Previously she had been taking student loans out, which went into her account and would have tipped her account over $10,000 on a few of the years from 2006-2008 (so am assuming they need FBAR); after that we took out less loan because my job situation became more stable.

We will file tax returns for all those years anyway as Married, Filing Separate. I agree, I am quite nervous about being on any record to do with her US tax situation, which is why I am very thankful for the helpful guidance given above in previous posts.

We will file tax returns for all those years anyway as Married, Filing Separate. I agree, I am quite nervous about being on any record to do with her US tax situation, which is why I am very thankful for the helpful guidance given above in previous posts.

I hope you really mean "She will file a tax return............" You don't need to file US taxes.

Aye - yes she will file it