To the IRS, a spouse is considered a foreign spouse when he or she is a not a US citizen, and does not hold a Green Card. In such instances, US expats can file as “married filing separately,” and exclude the foreign spouse’s income. Alternatively, they can file jointly and include the spouse’s income. There are pros and cons to each option.

Foreign Spouse and US Expat Taxes

(1)   Married filing separately (excluding spouse’s income) – Foreign spouses are not required to report their income to the IRS. Therefore, if a foreign spouse has significant income, there is little reason to include this amount in a joint filing. By excluding the spouse’s income, the foreign spouse is also not required to report foreign assets. As a possible wealth management strategy, the US spouse can also transfer assets to the foreign spouse, thus providing shelter against future tax liabilities and/or reporting requirements. Annual limitations do exist in terms of how much asset can be transferred to a foreign spouse.

Special note: When there are dependent children in the household (and the children have obtained their SS#s), the US spouse would file as “head of household,” and not married filing separately.

(2)   Filing jointly with a foreign spouse – Given the above, why would any U.S. expat include the foreign spouse in a joint tax filing? The main reason is to take advantage of the higher standard deduction amount. This approach works when the foreign spouse has little or no income. To file jointly, the foreign spouse will have to obtain a SSN or ITIN. Important to note: once the foreign spouse is recognized as a US taxpayer, this status is not something that can be easily turned off.

To learn more about filing jointly with a foreign spouse, visit the IRS (nonresident spouse treated as a resident).

For general information on US expat taxation, please read: US Taxes for Americans Living Abroad – Ultimate Guide.