I’m an expatriate and live and work in Europe, visiting family in the United States a couple times a year. I didn’t think about my U.S. taxes until recently, when I sat down to work on them. How is my changed marital status going to affect my U.S. tax liability?
Congratulations on the recent marriage. And bravo for your spot-on sense that your tax return may require special attention this year due to a change in marital status. Because your spouse is a foreign citizen who isn’t a resident in the United States, that change will indeed raise new considerations for you going forward.
You will need to determine your new status for tax filing, which can have a major impact on your ultimate tax liability. Since you were married on the last day of the tax year in question, you actually do have a choice: You can elect either “married filing jointly” or “married filing separately.” If you happen to have a child or possibly a parent who you support and if you’re under age 65, then you may also choose to be called “head of household.” But since the first two sound more likely to apply to your situation given the information you provided, we’ll focus on them.
The married-filing-jointly status has tax benefits that aren’t available to unmarried couples in other statuses, including those in the married-filing-separately status. This is what people are referring to when they say there are tax benefits of marriage; the government incentivizes marriage by providing associated tax breaks
However, there is a catch. If you choose to file jointly with your spouse, all of his or her income for the entire year (even money earned during the portion of the year before you got married) is generally subject to U.S. taxes. There are some exceptions that can mitigate the impact of this, but there’s no getting around the fact that you will likely take a hit if your spouse is a big earner.
Married-filing-jointly status is most often chosen when a foreign spouse does not earn much money. This is because married people get the same deductions and credits as other U.S. taxpayers, but do not have to worry about paying additional taxes. Furthermore, foreign spouses cannot claim certain tax benefits afforded by tax treaties between your country of residence and the United States if they file jointly with their American citizen spouses.
The married filing separately approach means that you do not have to include your spouse’s earnings on your U.S. tax return, but you also do not get some of the tax benefits that you would if you filed jointly. If you take this route, your spouse will not need to file a U.S. tax return or otherwise have his income considered by the IRS at all.
Ultimately, you’ll need to run the numbers under both scenarios to see which gives you a better deal. Tax professionals can help you with this process.