BY ANDREW TARPEY
In an increasingly global world, it’s quite common for people to leave their home country and move overseas. There can be a variety of reasons for someone to make an international move, such as a transfer with the company that one works for, a yearning to spend retirement years in a warm, sunny destination, or the desire of a young twenty-something to see and experience a bit more of the world once they’ve left school. The United States has long accepted immigrants from all over the world to its shores, but recent years have seen an increasingly large number of Americans move abroad. The U.S. government doesn’t keep official numbers regarding how many Americans are living abroad, but the U.S. State Department’s Bureau of Consular Affairs estimates the number to be around 9 million. With a number this large, there are a great many marriages that take place where an American citizen marries a non-American. For a couple of young newlyweds, tax requirements are probably the last thing on their mind. However, understanding the tax implications of their union is something every couple in this situation should be familiar with and plan for accordingly.
The tax laws of the United States are unique in that the government taxes individuals based on citizenship, not only on residency. Thus, if you are an American citizen living and working in a foreign country, you are required to file U.S. tax returns, and may be liable to pay taxes to the U.S. government on your foreign earned income as well, depending on how much you earned as well as other factors. While this may seem unfair, it’s the law of the land and the IRS will be looking to collect from you based on your possession of a U.S. passport. For Americans living abroad, determining tax requirements from income earned overseas is complicated enough. But those who are married to a non-U.S. citizen spouse face an even greater complexity when trying to navigate the infamously complicated U.S. tax code. First, the U.S. citizen needs to determine his or her own filing status, which can include filing jointly with their spouse, filing as a married person filing separately, or filing as head of household. Due to the complicated nature of such matters, and to reduce one’s tax liability and determine the best status for each person’s unique situation, it’s always best to consult a tax advisor that has familiarity with such matters.
Another factor that needs to be taken into consideration is the status of the non-U.S. citizen spouse. If they are someone who has U.S. permanent resident status (commonly known as a green card holder), they are still considered a U.S. tax resident under American law, even if they are living and working outside of the United States. As such, they are subject to taxation by the U.S. government on their income. Think of it: a non-American living and working outside the United States is still subject to U.S. taxes – no one ever accused Uncle Sam of being fair in tax matters! If the non-U.S. spouse doesn’t hold permanent residence status in the United States, they are deemed to be a non-resident alien and are usually not subject to U.S. tax laws. It’s then up to the American citizen living overseas if they wish to include their spouse on their tax return in this instance. As mentioned earlier, it’s always best to seek professional tax help to determine the best filing status for one’s own personal situation.
A marriage between two people of different nationalities can open up doors that aren’t available to other married couples. The couple may have the option of choosing which of their countries of citizenship to live in, thus allowing one of them the chance to experience life in a different culture.
Their children may be eligible for dual citizenship, which expands the child’s options for the future regarding where they live, work or attend school. However, one of the drawbacks for Americans and their non-U.S. spouses are obligations under the U.S. tax system that can be complicated and frustrating. It’s best to let the tax professionals handle the dirty work of sorting through the particulars of each couple’s tax requirements.