Can a US Citizen married to a foreign government official working in the US be able to file jointly and exempt her income?

[4650736]

I am a US Citizen married to a Canadian Military Service Member who is on assignment here in the United States (she is a nonresident alien). To my understanding she would not pass the substantive presence test because since she is on a NATO visa her time in the US is considered “temporary”. In addition based on some IRS publication 901 , my understanding is that her income is exempt from US taxes , however if I file married filing jointly , would she still be exempt from those taxes? The way I read it , to file MJF I would have to send a declaration statement declaring my wife as a US resident. If I do that , is she still exempt from US taxes on her income based on the fact she works for a foreign government? Or does that go away? 

[DaveF1006]

Yes, if you choose to file a Married Filing Jointly Return, her world wide income would need to be reported on the return. According to this link written by a Turbo Tax Expert, you have two options to file.

Choice 1

• Treat your spouse as a resident alien for tax purposes.   If you do this, you will need to include your spouse's worldwide income in your US tax return and it will be subject to US taxes.  

To do this follow these steps.

   1. Attach a statement to your tax return, signed by both spouses, that states that one spouse is a nonresident alien and the other is a U.S. citizen or resident alien, and you are choosing to both be treated as US residents for the tax year.

   2. List the name, address and Social Security number (or Individual Taxpayer Identification number) of each spouse.  You will need to complete a Form W-7, Application for IRS Individual Taxpayer Identification Number (ITIN) (http://www.irs.gov/pub/irs-pdf/fw7.pdf).  This form will be attached to your tax return.  Turbo Tax does not support the Form W-7.  You can complete it outside of Turbo Tax.  You will have to print, sign and mail your return in if you are using Form W-7.

   3. For the first year you make the choice, you have to file a joint return. In later years you can file joint or separate returns. Married Filing Jointly will give you a higher standard deduction and has other benefits that are not available using a married filing separately status, but you do have to include your spouse’s worldwide income in joint income.

Choice 2

• Treat your spouse as a nonresident alien for tax purposes. You will not have to include your spouse's non-US income on your U.S. tax return. You will have to use the filing status of Married Filing Separately.

   1.  If you file as Married Filing Separately AND your spouse has no income from sources within the US AND is not claimed as a dependent of another US taxpayer, you CAN claim an exemption for your husband. You will need either a social security number or an ITIN for your husband to claim the exemption.