Treat Non resident alien spouse as resident ailen - Foreign tax credit

[mohankaumar]

I am on work visa in USA and my spouse has dependent visa and we have USA citizen kid.My spouse is working in CANADA since July 2021 on work permit .She is resident of CANADA f or tax.Her USA income is from Bank deposit.

For 2022 I am resident alien and my spouse is non resident alien.I got to know that non resident  alien  can be treated as resident alien if one spouse is resident alien.

I am planning to file Married filling Jointly 

Questions 

1 When filling USA tax return If we treat her resident ailen even though she is rnon resident ailen .Can she get foreign tax credit in USA tax return for taxes paid in Canada? Does tax treaty work in this case when non resident is treated as resident ailen

2 Can she be treated resident  ailen for Federal return but non resident for state return (IL) .In state return will show her IL income earned from Bank interest 

3 Can we file online using turbo tax ? As per IRS  website need to attach document to tax  return and explain i want to treat non resident spouse as resident 

[pk]

@mohankaumar ,  having read through your post :

(a) does your child stay in the USA with you or with mother in Canada?

(b) Does Spouse  and child each have SSN or ITIN?

(c) Are you and your spouse both citizen of  India  or another country ?

(d) Why do you want to include your spouse for joint filing ?  Why not consider  Head of Household if , and only if , you maintain a household for your child?

(e) Should I assume that you are on H-1 and spouse is H-4 or what ?

(f) During 2022 did your spouse spend at least 330 days  away from the US ?

Please answer my questions and I will circle back -- yes ?

Is this a duplicate question -- I seem to have seen a similar case earlier in the year.

pk

[DaveF1006]

No. According to the IRS, there are no tax treaty benefits available to a non-resident in this case scenario. This is explained in this IRS document. She can be treated as a resident alien for tax purposes only and  I will discuss the steps on how to to this at the end of this post.

She cannot be a resident alien for tax purposes and a non-resident for tax purposes. You can choose to file jointly for federal purposes and married filing separately for Illinois tax purposes however. 

You can prepare your return using Turbo Tax Online but you would need to print and mail the return because of the documents required.  Here is how to file Married Filing  Jointly.

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.  If you do not have these, 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.
4. Once complete, you will need to print and mail your return with all of the supporting documents attached.

[mohankaumar]

Hi @pk  

Please find answers below.Request your inputs

(a) does your child stay in the USA with you or with mother in Canada? (With Mother in Canada)

(b) Does Spouse  and child each have SSN or ITIN? (Yes) 

(c) Are you and your spouse both citizen of  India  or another country ? (India)

(d) Why do you want to include your spouse for joint filing ?  Why not consider  Head of Household if , and only if , you maintain a household for your child? (I ran numbers in Turbotax  .For married filing separately giving  my income and my child as dependent it shows I need to pay . When I opt for married filing jointly and give my income and my spouse world wide income and claim child as dependent  then i am getting refund .I am showing her as resident Alien and opting for foreign tax credit for taxes she paid in Canada .I am not sure this can be done (please refer point 1 in question asked) .I am not sure about Head of house hold option and if I am eligible. )

(e) Should I assume that you are on H-1 and spouse is H-4 or what ? (I am on L1 visa and my wife is on L2 )

(f) During 2022 did your spouse spend at least 330 days  away from the US ? (yes)

Please answer my questions and I will circle back -- yes ?

[mohankaumar]

Thanks @DaveF1006 

I read the document shared .It says"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."

Please confirm if my understanding is correct 

Does it mean that if I go  for married filling jointly  and treat my non resident ailen spouse as resident then she will not get foreign tax credit for taxes paid in CANADA  ?

If yes ,then i think I should not go for Married Filling Jointly as it will lead to double taxation of her wages  she earned  in Canada.

[MaryK4]

You will be able to use the foreign tax credit for your spouse's Canadian income, in general the tax treaty generally allows you to exclude a specified amount of U.S.-source income on their U.S. tax return, but in your case you are reporting it on the U.S. return and getting the credit so that you are not double-taxed.  @mohankaumar 

[mohankaumar]

@DaveF1006 

Request you to share inputs  if on USA tax return we can get foreign tax credit for CANADA wage.If my spouse  is treated as   resident alien even though she is non resident Ailen?

[pk]

@mohankaumar , while generally agreeing with my colleagues @MaryK4  & @DaveF1006 , I would like to point out that if the following ARE TRUE:

(a) your Spouse has a valid visa ( L-2) and has at least entered USA  at least once  during the 2022 to maintain her dependent visa valid;

(b) has worked abroad and stayed away from the  US shores  330 days  out of  US shores in a continuous 12 month test period encompassing the tax year 2022;

( c) has foreign earnings  in a country with which US has a double taxation  treaty

Then the L-2 spouse's tax status is the same as that of the primary  visa holder ( L-1) i.e. if the L-1 is a resident for tax purposes then the dependent visa holder is also a tax resident for US purposes.

If the above is true  and L-2 spouse also has a tax id , then you both can file as married filing jointly.

Furthermore , because  this will expose the  L-2 spouse's foreign income to US taxes , and to the extent  that income foreign sourced and taxed  by a foreign taxing authority, the income and the taxes paid on that income are eligible for foreign earned income exclusion and/or foreign tax credit.

There is no special request to treat the  L-2  holder  as a resident is required .

Does this answer your query ?    Note that all this depends on whether L-2 visa is valid  and the L-4 holder has not abandoned  US residency ( even though temporarily resident and working abroad )-- it is the intention as demonstrated  by actions and closer connection.

That is my considered opinion based on reading of 26 CFR 7701