Tag Archives: Marriage

Tax Issues When Married to a Foreign Spouse?

Are you married to a foreign spouse? A non-resident of the USA?

A foreign spouse or as the IRS puts it, a nonresident alien, what is that, you may wonder?  In this day and age, with businesses going global and worldwide travel being so easy, it is more and more common to see marriages take place between a U.S. citizen/non-U.S. citizen who is a resident of another country. These marriages trigger significant tax consequences. Continue reading

FacebooktwitterlinkedinFacebooktwitterlinkedin

Married to a Nonresident Spouse?

Nonresident Spouse or as the IRS puts it, a nonresident alien, what is that, you may wonder?  In this day and age, with businesses going global and worldwide travel being so easy, it is more and more common to see marriages occurring between a U.S. citizen/U.S. resident alien and a resident of another country. These marriages trigger significant tax consequences.

U.S. Resident Aliens

non-resident spouse, non-resident spouse, nonresident alien, non-resident alien, marriageIndividuals who have become permanent U.S. residents but are not U.S. citizens are classified as U.S. Resident Aliens. To be classified as a U.S. resident alien, the individual must be a “green card” holder or meet a “substantial presence test” that is based on time spent in the U.S in the current and prior two years. For U.S. income tax purposes, a resident alien is treated the same as a U.S. citizen and is taxed on worldwide income.

However, being married to a nonresident spouse complicates the selection of a filing status for U.S. tax return purposes and requires the couple to make one of two possible elections:

Married Filing Jointly

For a citizen/resident to file a joint return with a nonresident spouse, the taxpayers must include and pay U.S. taxes on the worldwide income of both spouses on their joint U.S. tax return, or

Married Filing Separately

If they choose not to file jointly, then the citizen/resident spouse files a married separate return without the income of the nonresident spouse and pays U.S. taxes on only his or her worldwide income. If the non-resident spouse has U.S. source income, the nonresident spouse may also have to file a U.S. income tax return using the married filing separate status on that return.

Filing Status Implications if You Are Married to a Nonresident Spouse

The choice of filing status has significant tax implications. If filing jointly, the taxpayers enjoy the lower tax rates of the married filing jointly filing status, have a higher standard deduction ($12,600 for 2015, as opposed to $6,300 for married individuals filing separately), and are able to claim the $4,000 personal exemption for both spouses. On the other hand, if the non-resident spouse has significant income, especially non-U.S. source income, it may be a better choice for the U.S. citizen/resident to file married filing separately without the non-resident spouse’s income.

Higher income taxpayers with investment income are subject to a 3.8% surtax on net investment income. This surtax has an income threshold of $250,000 for married taxpayers filing jointly and $125,000 for those filing as married filing separately. However, individuals filing as non-resident aliens are not subject to this surtax. Therefore, when weighing the pros and cons of making the election to treat a non-resident spouse as a U.S. resident, the effect of the 3.8% tax on the couple’s total tax picture must be analyzed.

Another issue to consider is that when one spouse is a non-resident alien, the earned income tax credit can only be claimed on a joint return.

To make the election to file jointly, both parties must make the election by attaching the required statement, signed by both spouses, to the joint return for the first tax year for which the choice applies. Generally this will require obtaining an individual taxpayer identification number (ITIN) for the non-resident spouse because the non-resident spouse generally will not qualify for a Social Security number.

Are You Married to a Nonresident Spouse?

Determining your best course of action for tax purposes when married to a non-resident alien can be complicated. If you need assistance in making the decision of whether or not to treat your non-resident spouse as a resident and/or obtaining an ITIN for your spouse, please call Alex Franch, BS EA  a call at 781-849-7200. To read more from the IRS on this subject matter, click here.

FacebooktwitterlinkedinFacebooktwitterlinkedin

Same-Sex Marriage: Now That It Is Legal In All States, What Are The Tax Implications?

same-sex marriage, Supreme-courtOn June 26, the Supreme Court ruled that the Fourteenth Amendment to the Constitution requires all states to license marriages between two people of the same sex. It also required that all same-sex marriages performed in other states are recognized in every state in the USA. This comes approximately two years after the Supreme Court overturned the Defense of Marriage Act (DOMA) enacted by Congress and signed by then President Bill Clinton. DOMA defined marriage as “legal union between one man and one woman as husband and wife.”

This has wide-range implications for married individuals who reside in states that until now have not recognized same-sex marriage. Also, for those who can now marry in their state, including employer-provided employee and spousal benefits, retirement issues, Social Security benefits, and of course tax issues.

Since DOMA was overturned, legally married same-sex couples have been required to file their federal returns as “married,” but they have had to file their state returns as single or head of household status if their state did not recognize their marriage as legal. That will now change. They will now be able to file using the married status for their state returns as well.

Tax Breaks Available to Legally Married Same-Sex Couples

Being married for tax purposes is not always beneficial. It depends on a number of circumstances. The following are some of the tax breaks available to legally married same-sex couples:

  • The right to file a joint return, which can produce a lower combined tax than the total tax paid by same-sex spouses filing as single persons (but this can also produce a higher tax, especially if both spouses are relatively high earners or one or both previously qualified to file as head of household);
  • The opportunity to get tax-free employer-paid health coverage for the same-sex spouse;
  • The opportunity for either spouse to utilize the marital deduction to transfer unlimited amounts during life to the other spouse, free of gift tax;
  • The opportunity for the estate of the spouse who dies first to receive a marital deduction for amounts transferred to the surviving spouse;
  • The opportunity for the estate of the spouse who dies first to transfer the deceased spouse’s unused exclusion amount to the surviving spouse;
  • The opportunity to consent to make “split” gifts (i.e., gifts to others treated as if made one-half by each); and
  • The opportunity for a surviving spouse to stretch out distributions from a qualified retirement plan or IRA after the death of the first spouse under more favorable rules than apply for non-spousal beneficiaries.

There is a negative side as well.

Many same-sex married couples, especially higher-income ones, may find that filing as married has unpleasant income tax outcomes. Divorcing before the end of the year can fix that. However, before employing that strategy, a couple needs to consider the other financial benefits of being married. The following issues are commonly encountered by same-sex married couples.

  • A taxpayer who is married and living with his or her spouse cannot file using head of household filing status. So a same-sex spouse (or both) who previously qualified for and filed a federal return using the head of household status will no longer file as head of household. Instead, the same-sex couple will file as married using the joint or separate status. This will generally result in higher taxes.
  • When filing as unmarried, one individual can take the standard deduction and the other can itemize. As married individuals, they must choose between the two. This could substantially reduce their overall deductions. If a same-sex couple files married separate returns and one spouse claims itemized deductions, the other spouse cannot use the standard deduction.
  • As unmarried individuals, same-sex partners were able to adopt each others children and claim the adoption credit. As married individuals they can no longer do that.

Domestic Partnerships

For those who are registered domestic partners (RDPs) in California, the Supreme Court’s recent ruling does not address the IRS’s position that these individuals are not legally married and therefore not eligible to file as married. Unless IRS changes its interpretation, RDPs will still not be able to file as married for federal purposes.

Contemplating a Same-Sex Marriage?

Are you thinking about a same-sex marriage? Do you live in a state that previously did not recognize same-sex marriage? Do you wish to explore the tax consequences of now filing as married individuals? Call Alex a call at 781-848-7200.

We invite you to visit our Facebook or Google+ pages to leave your thoughts, or feel free to leave a comment below this blog.

– – – – – –

photo credit: Supreme Court of the United States via photopin (license)

– – – – – –

Click here to read about The Supreme Court’s 5-4 landmark ruling on Obergefeel v. Hodges with regard to Same-Sex marriage.

– – – – – –

Perhaps you know someone who may benefit from this information, please feel free to share:
Linkedin - Joseph Cahill / WorthTaxTwitter - Joseph Cahill / WorthTax / WorthTaxPrepFacebook - Joseph Cahill / WorthTaxGoogle+ - Joseph Cahill / WorthTaxalignable_logo - Joseph Cahill / WorthTax

FacebooktwitterlinkedinFacebooktwitterlinkedin

Alimony: Bounty After Mutiny

by Alex Franch, Tax Specialist

Divorces can get pretty ugly, and alimony can feel like a bounty after mutiny. After all, money is often on the top of the agenda. Kids are expensive, so let’s lump them in with the topic of money as well.

Qualifying Alimony Payments

medium_8213432552Here are some basic items that qualify as alimony:

  • You and your spouse or former spouse do not file a joint return with each other
  • You pay in cash (including checks or money orders)
  • The payment is received by (or on behalf of) your spouse or former spouse
  • If legally separated under a decree of divorce or separate maintenance, you and your
    former spouse are not members of the same household when you make the payment.
  • You have no liability to make the payment (in cash or property) after the death of
    your spouse or former spouse
  • Your payment is not treated as child support or a property settlement

Non-Qualifying  Alimony Payments

Here are payments that do not qualify:

  • Child support
  • Non-cash property settlements
  • Payments that are your spouse’s part of community property income
  • Payments to keep up the payer’s property
  • Use of the payer’s property

What About Property Settlements?

Here is the interesting part of all of the alimony information, property settlements do not qualify and it sometimes happens that alimony can drop. When this happens, the IRS can go back and disallow some of the alimony payments because it considers them to be a property settlement. Divorce can indeed be expensive.

If my loving wife ever reads this, she should know that whatever happens, she would have to
pry the dog from my cold dead hands.

__________________________

photo credit: StockMonkeys.com via photopin cc

 

FacebooktwitterlinkedinFacebooktwitterlinkedin