ITIN application for mother in law

[hameshatumkochaha]

Hi,

Greetings! 

I applied for my 2020 taxes married filing jointly.  My mother-in-law meets the Substantial Presence Test for the year 2020 and 2021 (using 3 year past data).  We did not realize that we could claim her as a dependent.  Now that I try, I realized that she doesn't have an ITIN.  We are applying for ITIN with W7.  She is Indian citizen with green card paperwork in progress.  Her income in India is primarily bank interest and is ~$2500.  

Questions:

1. Do we submit W7 with her form1040 only then once we get her ITIN we submit our form1040 amended OR do we submit W7 with her form1040 and my form1040 amended with her claimed as a dependent and ITIN left blank?  

2. She has no paperwork (i.e. 1099-MISC/INT etc) from US institutions.  She has no account in any US bank / brokerage etc.  In her form1040, on which line does her $2500 income go?  If line 8 of form1040, then would Schedule1 line 8 will also be $2500?  I ask because I could not find an appropriate category for line 8 of Schedule 1 on Page 87-90 of IRS' document i1040gi.pdf for her income in India.

2b. I have her Indian tax summary page 1 showing the amount in INR (currency) (IN HINDI though, not in English).  Do I need to file it with her taxes? If not, what does she submit to show her ~$2500 income proof?

3. I assume that line 12 for married filing separately (her) would result in $12400 which will result in $0 taxable income hence $0 taxes. Is that correct? 

4. Is there an income limit below which a dependent has to have income?

Please comment and help!

Thanks

[Opus 17]

If her income is less than $4300 she is not required to file a return and will gain no benefit from filing.  

She can’t file a w-7 unless she has a financial connection to the US.  Her only connection at this time is being claimed as your dependent.  So you would attach her W-7 to the amended return on which you claim her as a dependent, and mail the whole package to the address for processing the W-7.  

[Opus 17]

To claim your mother-in-law as a dependent, she must be a US person under the tax code (substantial presence test or green card), she must have less than $4300 of taxable income, and you must provide more than half her total financial support.  It is not necessary that she live in your home, but if she does live in your home, then part of your rent or mortgage, food, utilities and other household expenses, count as support you provide even though it is not in cash. 

Also, if your mother is a US person under the tax code, and she owns or controls foreign bank accounts with assets more than US$10,000, then she must file a report called an FBAR to report ownership of the account (tax is not owed, just the report).  This is separate from an income tax return and can be filed online, see here for more,

https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-a...

(The dollar value of the account would be the US dollar value at the conversion rate on Dec 31 of the year for which the report is being made.)

(Also note, if she withdraws money from her foreign account, that is not taxable, only the interest income is taxable.  But if she withdraws money and spends it on living expenses, that might affect the support test to be claimed as your dependent.)

[hameshatumkochaha]

Thanks for the comments.  The only reason she was filing form1040 for year2020 was because the W7 says fill with 1040...  

Should I interpret your response as:

1. Neither.  File her W7 with my amended return.  No Form1040 for her.

2 and 2b. What should be presented as her no/little income proof?  Nothing is ok? 

3. Would this be moot?

4. $4300?

If my understanding is wrong anywhere, please clarify.  

Thanks

[hameshatumkochaha]

Hi,

Yes, she lives with us in the USA and doesn't use her money in India for living expenses.  Thanks for the info on FBAR.  I am aware of FBAR.  Please comment on my interpretation of your comments submitted earlier.  

Thanks again!

[Opus 17 · Accepted solution]

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@hameshatumkochaha wrote:

Thanks for the comments.  The only reason she was filing form1040 for year2020 was because the W7 says fill with 1040...  

Should I interpret your response as:

1. Neither.  File her W7 with my amended return.  No Form1040 for her.

2 and 2b. What should be presented as her no/little income proof?  Nothing is ok? 

3. Would this be moot?

4. $4300?

If my understanding is wrong anywhere, please clarify.  

Thanks

---

1.  You can do either.  If she files a return to report the $2500 of taxable income, she will probably** owe no tax.  She could attach the W-7 to that.  You file your amended return after she receives her ITIN letter.

Or, since there is no need for her to file based on her income, you could file an amended return listing her as a dependent and attaching the W-7.  You would write "applied for" in the space for her tax number and not "NRA".   Either a tax return in her name, or adding her as a dependent, creates the connection needed to process a W-7 application.  Since no tax return is required in her name (because income less than $4300), why do the extra work?

Or, do nothing now, and wait for 2021 tax season.  File your original 2021 tax return claiming her as a dependent and attaching the W-7.  Then when she gets her ITIN letter, you would file the amended 2020 return.  Because of the long IRS backlog, and the fact that they prioritize current returns over prior year or amended returns, that might actually be the most efficient method.

2. The interest income would be reported as bank interest on schedule B which then flows to form 1040 line 2b.  I believe Turbotax has a checkbox for "this bank did not issue a 1099-INT".  You don't need to send proof with the tax return, but keep proof for 3 years in case of audit.  The income would be reported based on the foreign exchange value on the date the interest was paid.  So if it was paid quarterly on the last day of the quarter, you would convert that payment to USD at the conversion rate for that date. 

3. If she files a tax return in her own name, as married filing separately, then her standard deduction is $12,400 and she would owe no income tax if her income was less than that amount.  **HOWEVER, if her spouse is also a US person and files a US tax return also as "married filing separately", and the spouse itemizes their tax deductions, then your mother-in-law's standard deduction is ZERO and all the income would be taxable unless she has itemized deductions (like a mortgage or donations to charity).  (If the spouse files MFS and uses the standard deduction, the M-I-L can use the standard deduction.) 

4. For 2020 and 2021, the income limit to be a "qualifying relative" dependent is $4300.  There is no specific income limit to be a "qualifying child" dependent but that status does not apply here.  

[hameshatumkochaha]

Thanks again!  W7 form says " If you check box b, c, d, e, f, or g, you must file a U.S. federal tax return with Form W-7 unless you meet one of the exceptions (see instructions)".  That's why for her we were filing a 1040.  

Your this comment helps: "Either a tax return in her name, or adding her as a dependent, creates the connection needed to process a W-7 application.  "

"Or, since there is no need for her to file based on her income, you could file an amended return listing her as a dependent and attaching the W-7.  You would write "applied for" in the space for her tax number and not "NRA"." 

Would this trigger a W7 to actually execute and her to get an ITIN and being attached to my amended return?  

- What is NRA?  No Return Applied?  

[Opus 17 · Accepted solution]

"You must attach a tax return" means either a return in the person's own name or a return listing the person as a dependent.  (Otherwise, it would be impossible to obtain an ITIN for a child who is too young to work.)

Look at the form, if you claim her as a dependent instead of filing her own return, you would check box D, and provide "mother" as the relationship and your spouse's tax number in E.  If she filed the W-7 with a tax return in her own name she would check box B. 

"NRA" means non-resident alien. There are certain situations where you might file a tax return and write "NRA" in the space for a spouse or dependent's tax ID number if they did not have an ITIN and weren't eligible to get one.  While I was replying to your previous post, I think I saw something out of the corner of my eye that you might put NRA on your return so I mentioned not to do that. It doesn't apply to you, if you are applying for an ITIN write "applied for."  (You also didn't use the term so I mis-saw something on screen.)

[hameshatumkochaha]

I again Thank You for your help!  I am planning to follow your advice.

I just want to specify that the idea is to submit my amended 2020 returns with her W7.  I understand how you said it might be more efficient to file W7 with 2021 return but the issue is we don't know to get the paperwork checked etc, we would have her in the USA then.  That's why I am not waiting for 2021 return.  Also, we simply did not know about ITIN earlier so did not apply when I filed, resulting in amending my 2020 returns now... 

Aside: Maybe we could have claimed her in 2018 too (I don't list below but she was in the USA in 2017 and earlier for a few months each year) as likely she met the Substantial Presence Test then too...  

In the coming days, I'll go to IRS local office to get her Passport and VISA checked by the IRS to avoid mailing to them.  Her stay in the USA was as follows: 

1. year 2018: ~175 days
2. year 2019: ~60 days
3. year 2020: full year: 366 days
4. year 2021: All days YTD: ~200+ days

If anywhere my understanding is wrong, please point out.  

Otherwise, I will update this thread once I get $500 from the IRS.  

Thanks again!

[hameshatumkochaha]

I came up with another question.  

The amended return paperwork says it should go to Ogden, Utah.  The W7 form says it should go to Austin TX.  Since I am amending with W7, I think both W7 and Amended returns should go to Austin TX.  Is that accurate?  The IRS webpage says yes for the 1040 (i.e. non-amended) but doesn't say anything for 1040-X...  

Thanks

[Opus 17]

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@hameshatumkochaha wrote:

I came up with another question.  

The amended return paperwork says it should go to Ogden, Utah.  The W7 form says it should go to Austin TX.  Since I am amending with W7, I think both W7 and Amended returns should go to Austin TX.  Is that accurate?  The IRS webpage says yes for the 1040 (i.e. non-amended) but doesn't say anything for 1040-X...  

Thanks

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You are correct, send the return to the address for the W-7.  Once the ITIN is issued, they will forward the amended return for tax processing. 

[hameshatumkochaha]

Update: 

Went to the IRS local office and submitted paperwork for W7 for my mother in law with my 1040-X (Amended form).   The officer(s) were very helpful.  The Turn Around will be say 7 weeks for ITIN and about 10 weeks for $500 check.  Fingers crossed.  I will repeat the process for year2021 for which we will qualify.  

I wish this was possible for a green-card (GC) holder without ITIN / SSN.  My father in law has GC but is not interested in applying for an ITIN/SSN (reasons are simply random)... 

Thanks again for all the help!