I am recently married but my spouse lives outside the U.S. Should I file as married or single? Should I update my W4 to married?

Ok ... the W-4 is just for withholding allowances ... if you will not file a joint return then continuing to withhold at the higher single RATE is recommended.

Now ... on your tax return.. since you are married you can NOT file as single any longer ... you will file either as married,  married filing separately or Head of Household if you have a qualifying person.  Consider your options carefully ...

Filing a tax return with a non-resident alien spouse

If a person is not a US citizen, permanent resident or resident alien, they are considered a non-resident alien.

There are several reasons why someone is a non-resident alien.

·         They live abroad

·         They were in the US but don’t meet the Substantial Presence Test

·         They are in the US but are an exempt individual (J, Q, F, M, A, G visa holders meeting certain conditions, see http://www.irs.gov/Individuals/International-Taxpayers/The-Green-Card-Test-and-the-Substantial-Presence-Test)

Generally, a non-resident alien (NRA) cannot file a joint return. That would mean that if you are married to a NRA, you would need to file as married filing separately or HoH if you have a qualifying child and meet the HoH requirements.

Filing married filing separately requires providing the SSN/ITIN for your spouse. However, NRAs often do not have an ITIN/SSN. If they are not required to get an ITIN (meaning they are not required to file a US tax return), you can file without it and write “NRA” in the field for the ITIN/SSN. Note however, that you won’t be able to e-file doing this.

If the NRA spouse has no US source income, the other spouse can also take an exemption for the NRA spouse on a married filing separately return. In order to do this, the NRA spouse needs to apply for an ITIN if they don’t have an SSN/ITIN.

Another option is to file married filing jointly. Since an NRA cannot do that, both spouses need to sign a statement that they both choose to treat the NRA spouse as a resident alien for the entire year. This allows them to file jointly. The choice is valid for any following year unless suspended or revoked.

Treating the NRA spouse as resident alien means that they are required to report worldwide income. If they have foreign earned income, they might be able to use the foreign earned income exclusion on form 2555(if the meet either the bona fide residency or physical presence test) and/or use the foreign paid tax credit on form 1116.

Filing jointly will also require the NRA spouse treated as resident alien for tax purposes to have an SSN or ITIN.

For more info read here:

Publication 519:

http://www.irs.gov/uac/Publication-519,-U.S.-Tax-Guide-for-Aliens-1

http://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident-Aliens-Abroad---Nonresident-Alien-Spouse