My wife and I lived in Japan last year. She worked for a Japanese company I worked for the US gov. She was not a resident alien then. Do I need to report her income?

[ddemo]

Married before 2016. Lived overseas. I'm US citizen, she's not. Received an ITIN in July 2016. She worked for Japanese company and got foreign income.  Did NOT have green card.  Moved to America Jan 2017.  Received Green Card and Social Security Number.  So became a conditional permanent resident. Do I need to report her foreign income when she was a Non Resident Alien married to a US citizen?  Once she got her admittance to the US she has not worked but has her foreign bank account..

[GeoffreyG]

Thanks for the additional information.  That helps explain a lot.

For your situation then, with an ITIN number valid for 2016, you could file your 2016 US tax return as MFS under Option # 1 (as outlined in the original reply), or you could file jointly under Option # 2 (again, as outlined previously).  With filing Option # 1, you could exclude all of her Japanese (foreign) income; but with Option # 2 you would need to include it by filing as MFJ.  So, you essentially get a choice here, courtesy of the IRS, as to what you want to do.  One way has you including your wife's foreign income, and the other way does not.  You might want to lean toward Option # 1, because it is easier to do, and you don't have to report or pay tax on your wife's Japanese income.  That said, there's really no right or wrong answer here, because it is a true taxpayer option.

In other matters, as a US government or military worker stationed overseas, you're not eligible for the foreign earned income exclusion available to those in the private sector, but there in no choice that can be made there.  It is simply a fact that you'll have to pay regular US income taxes on your wages.

One final point that we haven't address is that if you or your wife maintained a financial asset account (including bank or brokerage) in Japan, then you may have a federal disclosure reporting requirement.  

Specifically, there are two separate disclosure forms that may be required; each also has different reporting rules.  One is known as IRS Form 8938, and can be attached to the Form 1040 tax return.  The other is FinCen Form 114, which can only be filed via the internet.  The following Internal Revenue Service webpage describes them in some detail, and provides their dollar value reporting levels:

<a rel="nofollow" target="_blank" href="https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements">https://www.irs.gov/bu...>
 
Form 8938 is included in TurboTax; FinCen Form 114 is not, and you may need to access that reporting webpage separately, if your foreign financial assets total over the limit(s).  Note that you can get to the FinCen reporting internet site through the above IRS link.

Hopefully all this information will be useful to you.  And yes, we absolutely do appreciate that international tax issues, especially, can be quite difficult.  So it may take some time to absorb everything.  Please read over the facts here carefully, and also please feel free to explore the posted links for additional information.

Thank you again, and welcome home.

[ddemo]

Does this mean I have to do two separate tax returns one for me and one for my spouse?

[GeoffreyG]

Not unless you count a Japanese tax return as being the other tax return (and I don't honestly know enough about the Japanese tax system to tell you about that, without doing further research).  For for US tax purposes, though, if you went with filing Option # 2 (a joint tax return, including your spouse's Japanese-source income) then that means only filing one return; and if you went with Option # 1 as suggested (filing a Married Filing Separately return for just yourself), then your spouse doesn't need to file a comparable MFS tax return . . . because for the 2016 tax year she was a nonresident alien with no US-source income.  So, either way you look at it, no, you really don't have to file two returns for US tax compliance purposes.   Thanks.

[ddemo]

So why can't she be eligible for Foreign Tax Exclusion?

[GeoffreyG]

You wife could be eligible to take the Foreign Earned Income Tax Exclusion, yes.  But, in order to do that, you would have to first select Option # 2 from the broad choice list (either Options # 1 or # 2) that are given to US citizens with nonresident alien spouses, as was previously detailed.  Next, you would have to include all of her 2016 worldwide income on this MFJ tax return (Japanese wages plus anything else); and then you'd be able to exclude most (or all) of her wage income, using the Foreign Earned Income Tax Exclusion method.  That would be using filing Option # 2, and Form 2555.  Please see the Form 2555 instructions, Page 3, Part III, "Physical Presence Test," left column, paragraph entitled "Note."  You are not eligible for the Foreign Earned Income Tax Exclusion, as a US government employee.  If choosing to file your US tax return jointly with your wife, using Option # 2, you will be unable to do so using TurboTax (the program simply lack the functionality to do this).  Filing Option # 1, Married Filing Separately, remains a choice as well, and that can be done using TurboTax; by printing the tax return, paper filing, and following the IRS instructions for writing NRA or nonresident alien in lieu of the spouse's SSN.  Thank you, and good luck to you both.

Link to Form 2555 instructions for 2016:  <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i2555.pdf">https://www.irs.gov/pub/irs-pdf/i2555.pdf</a>

[ddemo]

What if she has a SSN?  Doing MFS, do I still write NRA if I'm treating her as such?

[bine22]

no, in that case you enter the SSN

[GeoffreyG · Accepted solution]

Your question is a little bit unclear as to your wife's residency status for 2016.  If I understand correctly, did you mean to indicate that she was a nonresident alien for the 2016 tax year; but that the two of you were married at some point prior to December 31st, 2016 (including the possibility of being married for multiple years?  If so, then the following information applies to you.  If I have misunderstood somehow, then please post some additional follow-up information here on this question thread and we will try to help you better.

If you are a United States citizen (or a Permanent Resident) and are married to a non-citizen, then you have some options on how to file your US tax return, although current United States tax laws do not make this process particularly easy.  Obviously, a married person cannot simply ignore their spouse and file a tax return as Single (even where their spouse may be a nonresident alien living abroad, with no US income).  With that possibility off of the table, we are left with the following.

Option # 1:  You can file your US tax return as Married Filing Separately (which is usually a somewhat unfavorable tax filing status), and just report your own income there.  TurboTax can walk you through this process, and help you create the necessary Form 1040.  If your spouse does not already have an ITIN number, or a Social Security number, then this return would have to further be printed and paper filed.  If your spouse has a valid ITIN or SSN, then the tax return would be eligible for e-filing.  If there is no ITIN or SSN, then in any place where the nonresident spouse's taxpayer ID number is required on a tax form, you would take a black or blue pen and manually write "nonresident alien" or abbreviate as "NRA."

You can also claim a personal exemption for your spouse, if your spouse had no gross taxable income for U.S. tax purposes, and was not the dependent of another taxpayer.  This mirrors the similar rule for US citizens and resident aliens filing as Married Filing Separately to claim the personal (dependency) exemption for their spouse, where that spouse has no taxable income, is not filing a separate tax return, and is not claimed as a dependent on any other taxpayer’s return.  But, in order to do this and claim the personal exemption, your spouse must also have a valid Social Security Number or an ITIN.

Option # 2:  You can elect to include your nonresident spouse on your US income tax return (which may be more or less tax favorable than Married Filing Separately); and file as Married Filing Jointly; but you would need to file a paper Form 1040 tax return in order to do so.  The somewhat complicated process for completing this type of tax return is explained in detail at the IRS.gov website here:

https://www.irs.gov/individuals/international-taxpayers/u-s-citizens-and-resident-aliens-abroad...

Such a tax return (Option # 2) is probably best done by a professional tax preparer.

If you choose Option # 1 and have any difficultly with that, then having the tax return prepared by a professional is also an option here too.

TurboTax has a helpful Frequently Asked Questions webpage about this subject, and you may wish to look at that as well.  Here is the link:

https://turbotax.intuit.com/tax-tools/tax-tips/Taxes-101/Claiming-a-Non-Citizen-Spouse-and-Children-...

Also, you can read the complete answer to a similar question that was asked here about a year ago.  There is some good information and advice in there as well:

https://ttlc.intuit.com/questions/3089728-how-can-i-file-taxes-with-my-new-foreign-spouse-who-doesn-...

Thank you for asking this important question.  And, again, please feel free to post any additional relevant information.

[ddemo]

Married before 2016. Lived overseas. I'm US citizen, she's not. Received an ITIN in July 2016. She worked for Japanese company and got foreign income.  Did NOT have green card.  Moved to America Jan 2017.  Received Green Card and Social Security Number.  So became a conditional permanent resident. Do I need to report her foreign income when she was a Non Resident Alien married to a US citizen?  Once she got her admittance to the US she has not worked but has her foreign bank account.