California state tax MFJ or MFS with non-resident spouse staying in Canada when filing MFJ in federal tax

[YTY2024]

Hi: 

I am a California tax resident alien in the US with SSN and my spouse is a US non-resident with ITIN, staying mostly in Canada (visiting me occasionally) 

I am aware that the US federal tax can treat my non-resident spouse as a US taxpayer with a statement, signed by both spouses, to my Federal joint return for the first tax year.  The statement should contain the following information:

1. A declaration that on the last day of the tax year one spouse was neither a U.S. citizen nor a U.S. resident within the meaning of IRC section 7701(b)(1)(A) and the other spouse was, and that you choose to be treated as U.S. residents for the entire tax year.
2. The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

I should include my spouse's global income on top of my tax return for MFJ and his global income does not need to include SSN tax and Medicare in Federal and medicare tax in California due to his non-residency.

My questions are below:

1. Since my marriage happens in Canada, should I register my marriage in US for the tax purpose? 

2. Is this Federal statement valid for CA state tax as well? so I can file MFJ in Federal and in state tax as well?

3. Both myself's and my non-resident spouse's standard deductible can be applied in MFJ Federal and MFJ CA state tax? 

4. In this first-time MFJ in federal and state tax with my non-resident spouse, both Federal and state tax should be filed by mail? In the future years, I can do e-file on TurboTax for Federal and state tax?

Thank you in advance.

Best regards,

YTY

[pk · Accepted solution]

@YTY2024  Welcome to the US of A.   My first questions are :

(a)   From your  post I assume that you are  on work visa  -- which please ?   When did you enter the USA with this work visa ?

(b)   When your husband visits you , should I assume that he comes here as a visitor  ( B visa or nil visa )  and not under  a  dependent visa ?  Is he a Canadian citizen like you  ?  Or different  ?

(c)   Which tax year are you  filing ?

(d)  Why do you want to file jointly and thereby  include  his world income under US taxes ?

I ask these  questions ( pardon for the intrusiveness thereof )  because  I disagree  with  many of your assumptions and therefore  need to calibrate  to the actual facts and circumstances.

I will come back once I hear from you --yes ?

[YTY2024]

Hi pk:

Thank you for your questions.

For question (a-c), I am in a student visa OPT for work and I have been in the US for years. My partner (Canada PR) and I (not US PR/citizen, nor Canada PR/citizen) got married this year in Canada and therefore I need to change my filing status (from single in previous years to married this year) to save federal and state tax. My partner visits me through ESTA for short visits, not a dependent visa.

For (d), as stated above, since my partner is not staying in the US (non-resident alien) and on the IRS website, it says it is possible to change foreign spouse to US tax RA for the MFJ purpose by mailing the statement. 

Please let me know if anything is missed and please try to answer questions in the first post.

Many thanks,

YTY

[pk · Accepted solution]

@YTY2024  you are correct in your assumptions.  But please try out the different tax scenarios to see  which is more  beneficial -- MFS ( Married Filing Separate ) vs.  MFJ.

BTW --  a marriage  in another country is automatically recognized in the USA.  Thus you do not have to register  the marriage anywhere. Just present yourself as married.

Is there more I can do for you ?

[YTY2024]

Hi pk:

Thank you for reply and it resolves my questions for the tax year 2024.

Follow-up questions:
1. For my spouse's Canadian income (foreign income) on top of my W-2, will TurboTax auto-generate the corresponding form after I do a CAD <->USD conversion by myself, fill in the numbers in the TT system, and upload his Canada income form onto TurboTax?

2. Not sure if this can be answered here: under the US-Canada tax treaty, my spouse's income that is taxed in the US (US RA combined with mine) should be able to be reported in Canada as a foreign tax credit to avoid double tax. Since his Canada income is on top of mine, does this mean his income multiplying my highest tax bracket will be his Canada foreign tax credit? or the tax credit will be half of the overall US federal income tax?

Please try to answer those questions.

Many thanks,

YTY 

[pk]

@YTY2024  on going over this whole thread , I  recognize that you are asking some very specific questions and which may or may not have been fully dealt with.  To this end let me  provide my understanding of the situation:

1.  You are on F-1  on OPT but probably have been in the USA long enough to pass the SPT and therefore file your return on form 1040 -- which country are you from ?

2.  Your husband is PR of Canada and  is wage earner in Canada.  Which country is he from?

3.  You both desire to  treat your husband as a Resident for Tax purposes , by including him on your MFJ filing.  He has no domicile here in the USA.

4, You are domiciled in California ( on OPT) and therefore need to file a State return.

5.  You do not want your husband's income to be exposed  to US SECA ( Medicare and Social Security ) because  he is not resident here in the  USA and does participate  in the Canadian versions of  Social Security and Medicare .

6. You are hoping that by e3xposing his Canadian income to US taxes , he can  take advantage of  Foreign Tax Credit to reduce his Candian  tax liability.

Are my understanding correct ?   Please answer my questions ( embedded above ).   Also I need to understand what is the end  goal here -- what  are you trying to achieve ?   Are you trying to get your husband legalized by   sustaining a  "Resident for Tax purposes " without physical presence  here in the USA ?  Or are you trying to reduce  his  Canadian  Tax liability  through  Foreign Tax Credit ( by paying taxes to the USA at a lower rate ) or what ?

I will come back once I hear from you --yes ?

pk

[YTY2024]

Hi pk:

Thank you for your questions.

(1)(2): yes, you are correct and we are from the country that does not have a tax treaty with US and Canada. We hope not to disclose too much personal information here unless needed.

(3): yes, basically my husband does not need to file US tax but if filing together, this can lower my overall US tax bracket by doing MFJ after calculation, instead of MFS myself. 

(4) yes

(5) yes

(6) The main purpose is to reduce my US Federal income tax after calculation by MFJ as compared to MFS. The foreign tax credit for my husband's Canada tax return is an incidental benefit. We are aware this will not legalize his immigration status.

Question1: do we use CAD<->USD exchange rate on the date of tax return submission on TT?

Question2: to claim foreign tax credit for his Canadian tax return, will it be half of the overall US federal + state income tax in MFJ? 

Many thanks,

YTY

[pk]

@YTY2024  thank you for the responses to my questions  -- I think I understand the situation a little better.

Your Q1

                 For exchange rate  CA$ to US$,  you have a few choices --- monthly average, semi-annual average or annual average -- these are all published by US treasury or wall street journal or Yahoo finance etc.  A point you have to keep in mind  -- you must use the same  source  for every transaction and keep good records as to how you converted CA$ to US$.

Your Q 2

                 Generally Foreign Tax Credit  works  pretty much on  reciprocal basis  -- thus if you choose to  get  foreign tax credit in the USA -- then the amount of credit allowable for the tax year  will be lesser of US tax liability  or actual taxes paid to foreign  taxing authority.   Canada  will do the same if you choose to use  foreign tax credit in Canada.  You can get credit from ONLY one country.

I general , I would strongly recommend that you try both   MFJ and MFS  ( for US purposes along with Canadian taxes) to see the fuller  picture.   Also note that the many states  do NOT recognize  tax treaties between US and another foreign country.  However, many do allow  Federal as MFJ and  State as MFS  because only one is a resident. )

Another point to consider  is  to declare the husband  with a different  tax home .  This will allows use of excluding foreign earned income from  US taxes while filing  MFJ

I am assuming here  that we  are talking about  tax filing for the tax year 2024 ( f to be filed in April 2025 )

I understand the tax treaty question.  However,  do want to add  that if you have questions/ situation s not of interest to the general  poster, you can always PM me  -- this is not visible to the general board  ( with the  proviso  that you post NO  Personally Identifiable   Information ).

Is there more I can do for you ?

pk