Question

Crazy rules and terminology regarding claiming dependents vis-a-vis Non-Resident Alien and Married Filing Separately status

Forum|Forum|5 years ago
April 15, 2021
2 replies
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I'm a US citizen married to a non-resident alien. We reside abroad, together, and have children who live with us. As my spouse has no desire or requirement to report anything to the IRS I have always filed as married/separately.

In most prior years I claimed our children as dependents. Recently, however, my spouse's income increased above mine. Now, TurboTax's interview suggests that, as a result, I cannot claim them as dependents unless I file a Form 8332 in which my spouse waives the right to claim them.

Form 8332 has language like custodial and non-custodial, which seems crazy to me because we are married, live together, and support the children together. My spouse simply now earns more than I do.

This distinction never really mattered before but it does now due to this stimulus payment and recovery credit business. So, it seems to me I now need to file a 1040X & 8332 for the prior year in which I did not claim the dependents, so that I can now, for 2020, claim them as dependents and obtain the full recovery rebate credit to which I'm entitled.

My spouse, however, may not like the notion of the term "non-custodial" being applied to them. For my part, I believe this is only intended in a tax sense, that it doesn't imply any actual custodial arrangement between us.

Have I understood the situation correctly as it applies to us?

We have never bothered to obtain a TIN for my spouse due to the hassle of doing so and there being no benefit to us. Now, of course, I'll have to submit a W-7 along with my prior-year 1040X, 8332, and current-year 1040.

P

pk12_2

Employee

@dag444gad , as I understand from your post :

(a) you a US citizen are married to a non-Resident Alien, have children, live abroad along with your spouse and children abroad

(b) your past tax filing status has been MFS ( Married Filing Separate ) and you do not have tax id ( SSN or ITIN ) for your spouse.

(c) your spouse now has foreign earnings -- i.e. local earnings but NO US sourced earnings

(d) 2020 you wish to include your children as dependents, assuming that they have a tax ID ( SSN or ITIN).

(a) Since you are maintaining a household for your children, you can always file as Head of Household ( HoH ) --- this ameliorates the tax situation --- your standard deduction is halfway between single/MFS and Married Fling Joint ( MFJ)

(b) Note that if your spouse files with you ( along with an ITIN), and a note signed by both wanting to treat her as a US resident, her world income gets taxed by the USA ( even though her earnings may come under foreign earned income exclusion).

(c) If your spouse has no desire to currently return to USA, then it may be simpler to get the ITIN/SSN for the children and you file as HoH -- you get all the benefits and yet her earnings are not taxed by the USA. She can then change her status as and when she deems worthwhile.

(d) HoH filing status does mean that you become the "custodial parent" for tax purposes but has nothing to do with anything beyond that-- does not abridge her rights as a parent. -- This is only because she as a "no-resident -alien" is a Non-US Person for tax purposes.

(e) This is pretty common situation for many US citizen ( not just the young ones either )whom have settled down abroad.

Is there more I can do for you? BTW I do not believe that TurboTax would require you to get a signed statement releasing her rights to claim the children --- she is NRA ( and there is I believe , an exclusion for that )

Perhaps you should go through the following "

1. https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad-head-of-household

2. https://www.irs.gov/pub/irs-pdf/p501.pdf ----------

"Nonresident alien spouse.

You are considered
unmarried for head of household purposes
if your spouse was a nonresident alien at any
time during the year and you don't choose to
treat your nonresident spouse as a resident
alien. However, your spouse isn't a qualifying
person for head of household purposes. You
must have another qualifying person and meet
the other tests to be eligible to file as head of
household."

3. https://www.irs.gov/forms-pubs/about-publication-54

Is there more I can do for you ?

D

dag444gadAuthor

( c ) is almost correct. My spouse has long had foreign earnings, but only recently have they increased past my own to be more than half.

The Head of Household status appears to require that my income is more than half of the household's, which is no longer true.

My children have SSNs, but we just never bothered to get a TIN for my spouse because my spouse has never had any US-sourced income and thus no obligation whatsoever to file with the IRS.

It seems to me I'll just have to get the TIN and file an 8332 one time for the year in which my spouse's income became more than half of the household's, as well as for “all future years.” I guess that should cover it.

P

pk12_2

Employee

@dag444gad the requirement is to have contributed more than half of household expenses for maintaining a household for the children -- not the actual income.

On the other hand if you are going to file joint then consider excluding both your incomes from US taxes -- each must file form 2555.

I don't know which country you are in but it is strongly suggested that (a) you read up on the tax treaty between US and that country and (b) perhaps visit the nearest US Consulate -- they often will have an IRS section that can advise you

Is there more I can do for you ?

L

linaj20201

Yes, that is correct. Technically you both do not fall into the requirement of Form 8332 as you both are not separated or divorced. Filing the form mainly to show the other parent is waiving the right to claim and let you claim instead.

As you mentioned, MFS does not require your spouse to have an ITIN. You might not able to e-file but still can prepare forms in TurboTax. As far as stimulus, only those who have a valid social security number qualify for the payment. ITIN would not qualify.