Foreign earned income exclusion for my spouse - please help!

[abanderson]

Hi. I am a U.S. citizen having U.S. income last year and my wife is a non-resident alien working in a foreign country. She was outside the U.S. for 330+ days in 2019. I am trying to file Married Filing Jointly but after reading discussions and answers here, I still have questions using TurboTax. Her foreign income is around 30,000+, so we should have foreign earned income exclusion, but in TurboTax it asked if she is a non-resident alien or resident alien, and according to its definition, she is a non-resident alien, and therefore TurboTax shows that she is NOT QUALIFIED for the foreign earned income exclusion. This is confusing because according to so many articles here, when I am filing Married Filing Jointly, she is treated as a resident alien and therefore should have the foreign earned income exclusion, correct? This is one of the answers I read (many topics have the same answer too): https://ttlc.intuit.com/community/tax-credits-deductions/discussion/do-i-need-to-include-my-spouses-.... Can someone help clarify? Thank you so much!

[SusanY1]

When you make an election to treat your nonresident alien spouse as a resident alien for tax purposes, she does not become eligible for the foreign earned income exclusion.  However, she can take the foreign tax credit for any taxes that she pays to the country that she works in on that same income.  

The Foreign Earned Income Exclusion (FEIE) is only available for taxpayers who are required to pay taxes to the U.S. on their income earned overseas.  In the case of the nonresident alien spouse, there is no requirement to include the income.  Therefore, the exclusion isn't available when you elect to include it.  

If she lives in a country that has an income tax, be sure to report the tax she paid in Deductions & Credits for Foreign Taxes Paid.

[ramclark]

Thank you for that response Susan. So from my understanding the OP's spouse would not be able to exclude her taxes as she is not "required to pay taxes to the U.S. on their income earned overseas." This appears to be the same situation with my wife. I was hoping to exclude her taxes as well, based on questions asked by the turbotax interview.

But you also said, "Therefore, the exclusion isn't available when you elect to include it. " Can I elect to not include her foreign income? Are there any drawbacks for not including it?

To provide context, I am an H1B holder (authorized work visa) and I got married in 2020 to a non-resident alien (my spouse had B1/B2 visa in 2020). I am now filing as Married, filing jointly. And of course, my spouse had foreign income (from her home country Jamaica) in 2020. She visited me here in the US for a total of about 60days in 2020.

[DianeW777]

You can choose to treat your spouse as a US resident alien by filing jointly. If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year. This also means that you must include all of her worldwide income on your joint return. Review the following requirements. Your tax home is the US.

If you meet certain requirements, you may qualify for the foreign earned income exclusion. To claim these benefits, you must have foreign earned income and your tax home must be in a foreign country, and you must be one of the following:

• A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
• A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
• A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

If she pays tax on her income to her home country, and you do not qualify for the foreign income exclusion, then you would be allowed to take the foreign tax credit which will provide tax relief so that  you are not taxed twice on the same income.  Use the following link to enter your credit.

• Where do I enter the foreign tax credit?

[ramclark]

Thanks again for that information. From what I read, I do believe she is eligible for the exclusion, but I have my doubts based on what a non-turbo tax preparer had said. What do you think? She is a a citizen of the country she resided in for the entire 2020 tax year. Thanks

[DaveF1006]

It depends. Regardless what you were told DianeW777 correctly states that she may be considered a resident alien for tax purposes. To file jointly, you must do exactly as stated.

According to this link written by a Turbo Tax Expert, you have two options to file you return.

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 wife. You will need either a social security number or an ITIN for your wife to claim the exemption.

[ramclark]

Thanks for the reply Dave. We are actually considering Choice 1. I am just uncertain about whether she would she be eligible to opt to exclude her foreign income (she is Jamaican and from what I have read, Jamaica does have a tax treaty with the US)? And further, could she also claim a tax credit on the foreign income if she does exclude it?

[DaveF1006]

It depends. I researched this link that lists specific requirements on who can claim the foreign income exclusion.  Here are the requirements. 

• A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
• A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
• A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

Now, it is mentioned in my earlier post that to file option 1, your wife MAY BE CONSIDERED a resident alien to exclude the foreign income but technically she isn't until the W7 application is complete. With this said, it is my opinion that she should not a candidate for Foreign income Exclusion until she is legally a resident alien. This is a matter that is interpreted as a legal opinion and not a tax question and we can't specifically comment on legal matters, we can caution our Taxpayers on legal ramifications that may exist. Now the good news.

You may qualify for a foreign tax credit. I have researched this Irs link. After reading this, the rules seem less strict.

[superduper]

I am planning to file married filing jointly. We married last year in Oct 2021, and my wife is a resident of Canada. She does not work in the USA nor has ever been to the USA. It's recommended we file married filing jointly for the USA Tax return, due to immigration reasons. I make about $150,000 a year, she makes about $48,000 USD equivalent. Is her income excludable per the IRS tax treaty? She is a Canadian PR and an Indian Citizen.

She has never been in the USA, her tax home is Canada, so per Form 2555 she should meet the requirement to be able to exclude her income? I am saying it will be added, but will also be excluded, so the net effect on our tax return would be 0. She does of course pay Canadian Income tax. Seems two options, to exclude her income using Form 2555 or to take foreign tax credit using form 1116. Anyone have expertise? 

It does state on, https://www.irs.gov/individuals/international-taxpayers/nonresident-spouse

"Generally, neither you nor your spouse can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect. However, the exception to the saving clause of a tax treaty might allow a tax treaty benefit on certain specified income."

[abby1234]

Hi, I have the same issue. My non-resident spouse works abroad and we want to file marriage join filing. However, we are struggling as follows:

• We don't know which box in 1040 to report foreign income tax since there is no W2.
• Does she qualify for foreign earned income exclusion (form 1555) . From the reading, it seems eligible

Please help advise. 

[superduper]

You probably need to provide a more detailed info on your wife. How long she has been in USA, if ever. When married. Does she have a social or ITIN? 

[SundayInSalem]

TurboTax will enter your foreign income in the correct place and walk you through the interview to determine whether you qualify for the foreign earned income exclusion.

If you do not qualify for a full or partial FEIE, you can claim a credit for tax paid to Canada on the amount of Canadian income subject to US tax.

Foreign Earned Income and Exclusion

1. Type foreign income in Search in the top right
2. Select Jump to foreign income

Do I need to report foreign income?

Foreign Tax Credit

1. Type foreign tax credit in Search in the top right
2. Select Jump to foreign tax credit

Where do I enter the foreign tax credit (Form 1116) or deduction?

[abby1234]

Unfortunately, she is a non resident who lives abroad and can't come to the US yet.

I will file joint-marriage filing and treated her as US resident. She doesn't have ITIN so we will attach W-7 with the tax return.

Her wage in foreign country  is ~10,000 USD but I don't know where to fill this number in 1040 form since there is no W2. My current plan is to fill this number in Schedule 1 (part 8Z, which looks like the open-ended text box) but I think it is the wrong way. 

I also fill in 2555 form but it becomes a tax deduction instead of adding to the taxable income.

Note: I use free file program provided by IRS

[superduper]

You may be better off using the foreign tax credit. Do it both ways. 1 way add her income and do forign tax credit. Other way, add her income and do exclusion. 

You do know that you need to get a W7 and a ITIN for her, which has quite some steps. 

[SweetieJean]

This forum is for Turbotax users.  The IRS free file program might not include Foreign Tax Credits.