Spouse's foreign accounts/income/taxes

[garyl888]

Hello,

My wife immigrated to the US from Japan in April 2025 and now has a green card and SSN.   She had to quit her job to come to the US and that triggered the sale of company stocks, retirement accounts, severance pay, etc.  She also received non-taxable child care payments from Japanese government and minimal bank interests.  Do we need to report all these income as foreign income?  If so, what rate do we need to use to convert to USD?  She also paid taxes in Japan for these income.   What information/documents do we need from Japan to file with the IRS?  

[DawnC]

She is a non-resident from Jan - green card date and a US-resident from green card date through 12/31/2025.    There is a special election to treat her as full-year resident and file jointly.

Sometimes this lowers tax, but sometimes it increases tax.   It depends on how much foreign income occurred before residency and your income level.  

How should I file my taxes if my spouse is a nonresident alien?   

How should I file my taxes as a dual-status alien?

Yes, she reports worldwide income after U.S. residency begins.   You can use payment-date exchange rates (or IRS annual average where appropriate).

You can claim Foreign Tax Credit for any Japanese taxes paid.   Non-taxable child care payments would be tax-free in the US if it was public assistance.

Watch FBAR and FATCA >  If at any point in 2025 she had more than $10,000 total across foreign bank accounts, FinCEN Form 114 FBAR must be filed! and if filing Married Filing Jointly, you must file Form 8938 if foreign financial assets exceed $100,000 (year-end) or $150,000 at any point.

[garyl888]

Hi @DawnC ,

Your statement:  "Non-taxable child care payments would be tax-free in the US if it was public assistance."  Where in the IRS documentation states that?  Is public assistance meaning from the Japanese government?  

[RobertB4444]

If the payments were used to pay for child care then the question is moot.  Just enter the cost of child care and the reimbursement in the section of TurboTax for dependent care.

If it was received as public assistance in a foreign country then it may not be taxable in the US.  The IRS has a whole thing on that here.  Either way it does have to be reported.

[garyl888]

I have a follow up question.  My wife got her green card in May 2025.  If I'm filing MFJ, I need to include all her worldwide income for the entire year in 2025 or post-May 2025?   

[AmyC]

MFJ on a 2025 tax return requires worldwide income for the full year. On the bright side, you can claim the foreign tax credit for tax paid to a foreign country on the same income. Use Form 1116 and claim the credit. See Where do I enter the foreign tax credit (Form 1116) or deduction?

[garyl888]

Thanks for the link to foreign tax credit.  In one of these pages, I read there is foreign tax exclusion?  Is that something better than a credit?  we can take both or it's either/or?  

[RobertB4444]

The foreign earned income exclusion excludes income earned in a foreign country if you pass the tests necessary.  It is either/or with the foreign tax credit.