Tax Filing and the Foreign Spouse – “Married Filing Separately” versus “Head of Household”

Tax filing time is upon us! Selecting the best tax filing status is an important element of tax planning and should not be taken lightly.  For US persons who are married to foreigners (so-called “nonresident alien individuals”, or “NRA”), special considerations come into play. 

Making the decision how to treat your foreign spouse for US income tax filing purposes can mean either the loss or savings of significant tax dollars.  While we all love to save tax dollars, saving them should not be the only factor considered in making the tax filing status decision. For example, if the NRA spouse plans to apply for a green card, and eventually to apply for US citizenship, it may be best to make a special tax election to treat the spouse as a US person for tax filing purposes and to file joint income tax returns. 

Married Filing Joint Tax Returns

A special election exists for this purpose under Section 6013(g) of the US Internal Revenue Code permitting tax treatment of the NRA spouse as a US taxpayer, in order that joint tax returns can be filed. The election is fully discussed in my earlier blog post here. 

Tax strategies and considerations when married to a non-US spouse and filing jointly are also outlined here.

Tax Benefits of Filing Head of Household

If you do not elect to file a joint income tax return with your NRA spouse, you might qualify to file as head of household (HoH). The qualification requirements are set out later. Filing HoH generally means the income of the NRA spouse is not included on the tax return (a big benefit) and also results in a lower tax rate than if you file as married filing separately (MFS).  In addition to lower effective tax rates, discussed more fully below, you can claim a higher standard deduction when filing HoH.   For 2019, the standard deduction for MFS is US$12,200 whereas for HoH, it is US$18,350.

If the Section 6013 election is not made to treat the NRA spouse as a US person, and the qualifications are not met to file using HoH status, then the tax return must be filed using MFS status.  Many clients come to me having made the mistake and filed using “Single” status when they have a NRA spouse.  It is not permissible to file as “Single” if you are married, regardless if the spouse is a NRA. 

Guess what, a taxpayer whose tax filing status is MFS, must file a tax return if the individual’s gross income is at least US$5.  Yes, that did read $5.  The extremely low filing threshold will impact many Americans who are typically married to a foreign spouse.  For example, a stay-at-home mom with a simple savings account earning interest income will be required to file a tax return. My blog post here explains why the filing threshold is now so low. See also, Chart A, Page 9 to the 2019 Instructions for IRS Form 1040.

Am I “Married”?

Sometimes, you may not know if you are “married” for US income tax purposes. This can happen, for example, if you married in a foreign country and are not sure of your marital status for US purposes. These questions are so vexing that we have Internal Revenue Service (IRS) Treasury Regulations in place to help answer them! My tax blog post here reviews these issues and Regulations and can help you figure out if you are “married”.  

Tax Rates

In general, under the US progressive tax system, there are seven tax brackets for ordinary income: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent.  As your income climbs, so does your tax rate.

Reproduced below are the US 2019 tax tables (used for 2019 tax returns that are due later this year). The tax tables demonstrate the different tax rates for the four different types of tax filing statuses.

With respect to MFS versus HoH, the top rate of tax (37%), for example, kicks in for MFS filers once taxable income exceeds US$306,176.  On the other hand, for HoH filers, the top rate is not triggered until taxable income exceeds US$510,301.  It is clear that the ability to file HoH can indeed be a great benefit. 

Tax rate Single Married, filing jointly Married, filing separately Head of household
10% $0 to $9,700 $0 to $19,400 $0 to $9,700 $0 to $13,850
12% $9,701 to $39,475 $19,401 to $78,950 $9,701 to $39,475 $13,851 to $52,850
22% $39,476 to $84,200 $78,951 to $168,400 $39,476 to $84,200 $52,851 to $84,200
24% $84,201 to $160,725 $168,401 to $321,450 $84,201 to $160,725 $84,201 to $160,700
32% $160,726 to $204,100 $321,451 to $408,200 $160,726 to $204,100 $160,701 to $204,100
35% $204,101 to $510,300 $408,201 to $612,350 $204,101 to $306,175 $204,101 to $510,300
37% $510,301 or more $612,351 or more $306,176 or more $510,301 or more

Qualification for HoH Status

In order to use HoH tax filing status, various requirements must be satisfied.  One such requirement is that you must be considered “unmarried”.  For US tax purposes in claiming HoH status, you are considered unmarried if your spouse was a nonresident alien at any time during the year and you do not make the Section 6013(g) election to treat your spouse as a resident for US income tax purposes.  So, even if you are “married” …. you may not be “married” for purposes of filing a tax return using HoH status.  Can it get any more confusing?

Other Requirements for Filing HoH

  • Keeping Up a Home – To qualify to file as head of household, you must also have paid more than one-half the cost of “keeping up a home” for the 2019 year. In making this determination, include in the cost of “keeping up a home” expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home.
  •  Qualifying Person – You must also have a “qualifying person” living with you for more than half the year (except for temporary absences, such as school). Your spouse cannot be a qualifying person for HoH purposes. You must have another qualifying person, who could be a child, grandchild or certain other relatives, such as your parents. If the “qualifying person” is your father or mother, that person does not have to live with you but you must be able to claim the parent as a dependent.

Exactly who meets the requirements for being a “qualifying person” depends on precise rules. The IRS has set these out in a convenient chart found in Table 4 of Publication 501. It can be accessed here.

If you need help with your tax planning please reach out to me. We provide solutions in navigating the complexities of the US tax maze that are even more treacherous when married to a non-US spouse.

Posted March 19, 2020

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