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Tax filing as married non resident aliens

Tax filing as married non resident aliens

Old Dec 26th 2014, 11:38 pm
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Default Tax filing as married non resident aliens

Hi guys,

My husband is here on an L1 and a,ready working for over 1yr.
I on the other hand am an L2 and just filling out my first W4 to start work in January.
The form indicates that if I'm married to a nonresident alien then I should file as single, how does that work as we are a married couple, we both file single?

Thank you πŸ˜„
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Old Dec 27th 2014, 12:38 am
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Default Re: Tax filing as married non resident aliens

Originally Posted by Justabbi76 View Post
The form indicates that if I'm married to a nonresident alien then I should file as single, how does that work as we are a married couple, we both file single?
This isn't a tax filing form, so the title of the thread is misleading. The W4 is a form that helps you determine how much tax the employer withholds from your pay each period. Usually, if you indicate "single", more tax is withheld - which usually means that when it comes time to file your annual tax return, you get something back. Most people prefer to have more tax withheld up front rather than have to pay something when filing a return. It's perfectly normal to indicate "single" on the W4 even if you file the return as a married couple (which, of course, you must do).

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Old Dec 27th 2014, 1:08 am
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Default Re: Tax filing as married non resident aliens

Originally Posted by ian-mstm View Post
This isn't a tax filing form, so the title of the thread is misleading. The W4 is a form that helps you determine how much tax the employer withholds from your pay each period. Usually, if you indicate "single", more tax is withheld - which usually means that when it comes time to file your annual tax return, you get something back. Most people prefer to have more tax withheld up front rather than have to pay something when filing a return. It's perfectly normal to indicate "single" on the W4 even if you file the return as a married couple (which, of course, you must do).

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Great, thanks Ian, you're a gem
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Old Dec 27th 2014, 2:41 am
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Default Re: Tax filing as married non resident aliens

Originally Posted by Justabbi76 View Post
Hi guys,

My husband is here on an L1 and a,ready working for over 1yr.
I on the other hand am an L2 and just filling out my first W4 to start work in January.
The form indicates that if I'm married to a nonresident alien then I should file as single, how does that work as we are a married couple, we both file single?

Thank you πŸ˜„
US taxes are complicated.

The W-4 is an estimate of how much tax should be withheld that only goes to the employer and not the government. In many cases, a L-1 or H-1B visa holder won't meet the substantial presence test during the first year and will file their year end tax return as a non-resident alien (form 1040NR) which has less deductions and credits but worldwide income is not reported. Because of the uncertainty of how much taxes will be owed when filing form 1040NR, the government wants those individuals to fill out the W-4 as single so that higher withholding will be done and the visa holder will probably get a refund when the year end taxes are filed.

After the first year, the visa holder will file as a resident (form 1040) so normally those visas holders would file like any USC.

However there is a gotcha when a spouse is also working whether a visa holder or a USC. The standard deduction and marginal tax brackets are about double the amount for married filing jointly compared to filing single or married filing separately. This is great for anyone that is married since it taxes the income as if each made half of the income whether one or both were working.

Now the problem with filing out the W-4. If the primary visa holder fills out the W-4 as married filing jointly and took allowances for the spouse and children, everything is approximately correct as far as withholding as long as the spouse isn't working. However if the wife is also working and the husband filled out the W-4 that way, the withholdings from his salary is already calculated to account for married filing jointly and all the allowances that were claimed. Therefore the wife's income would be taxed at the highest marginal tax bracket since it is in addition to the husband's income. If the wife also claimed married filing jointly plus all the allowances on her W-4, her employer would assume that was the only income in the family and calculate the withholding taking in to account the double standard deduction as well as all the allowances and lower marginal tax brackets since the W-4 doesn't ask about a spouses income or how the spouse filled his W-4 and the two employers don't communicate that information to each other. If the wife filled out the W-4 like that, there would be severe under withholding. To normally avoid penalties and interest for under withholding, withholding must be at least 90% of the taxes owed (other situations also apply where you may not be accessed penalties and interest).

The following is a link to a tax calculator and below the tax calculator are the marginal tax brackets. I'll use that tax calculator and marginal tax brackets to try to demonstrate how everything works.

1040 Tax Calculator

Tax Calculator:

Husband's Salary: $100,000
Wife's Salary: $0
Children: 2 - age 8 and 10
Filing: Married Filing Jointly
Standard Deduction: $12,400
Exemptions: Dependents=2, Dependents qualifying for child tax credit = 2, Personal exemption checked, and spouse exemption checked.

This gives total deductions of $28,200 leaving a taxable income of $71,800 and the federal income tax on that is $9,863 but is reduced to $7,863 due to the $2,000 child tax credits. We can use the marginal tax brackets to figure out how that was calculated. The $28,200 was taxed at 0%, $18,150 was taxed at 10%, and the final $53,650 was taxed at 15%.

$28,200 @ 0% = $0
$18,150 @10% = $1,815
$53,650 @15% = $8,048

Income $100,000 taxed $9,863 minus $2,000 tax credit equals taxes owed is $7,863.

If the husband fills out his W-4 just like he claims on the tax return, the company will withhold about 7.86% each pay period for federal income taxes and when taxes are filed at the end of the year, taxes owed will be very close to taxes withheld assuming there is no other income.

If the wife starts working and makes $50,000 and we add that as income in the tax calculator, federal income taxes go from $7,863 to $22,163. The reason is that the additional earned income is just more income that will be taxed at the higher marginal tax brackets. Of that $50,000 additional income, $2,000 will be taxed at 15% and the $48,000 will be taxed at 25%.

Even if the wife fills out her W-4 as single with no dependents, no child tax credits, no personal exemption, and no spouse exemption, that income is going to be way under withheld since the employer will only withhold $6,806 from the wife's income which is added to the husbands withholdings of $7,863 which is about $7,000 too little withheld of the $22,163 owed for the combined family. The reason that the wife's income is under withheld is that the husband claimed the married filing jointly status and all the allowance when he filled out the W-4 which left nothing left to claim on the wife's W-4 but the employer still calculates a $6,200 standard deduction and taxes part of her income at 0%, 10%, 15%, and 25% to calculate how much should be withheld when the full amount of her income should have been taxed at 15% and 25%.

How do you resolve this issue? There are complicated instructions for the W-4 as to how each spouse is supposed to fill out the W-4 so that taxes withheld will come out equaling that $22,163 owed. An easier way would be to use the calculator to figure out how each should file out their W-4 forms. In the above example, if each filled out the W-4 as single and take an allowance for 1 dependent each plus the personal exemption (2 allowances total), the taxes withheld will be very close to what is owed.

Using the tax calculator with each claiming single, 1 dependent, and the personal exemption:

$100,000 will be have federal taxes withheld of $17,331
$50,000 will be have federal taxes withheld of $4,931
Total taxes withheld from both the husband and wife will be $22,262 which is slightly more than the $22,163 estimated and a refund should be issued when a tax return is filed.

The government doesn't care (except for non resident aliens) how someone fills out the W-4s but is only concerned that at least 90% of what is owed is withheld. W-4s can be changed several times per year to compensate for bonuses or exercised stock options that are usually withheld at a 25% rate and often the rate should be higher. This eliminates any need to file quarterly estimated tax payments when unexpected income occurs and extra taxes will be due. Therefore when a husband and wife gets their pay stubs, the yearly combined incomes can be projected for the year and the tax calculator can be used to make sure that the correct amount is being withheld and if not, they should change their W-4s.
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Old Dec 27th 2014, 12:52 pm
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Default Re: Tax filing as married non resident aliens

Originally Posted by Michael View Post
US taxes are complicated.

The W-4 is an estimate of how much tax should be withheld that only goes to the employer and not the government. In many cases, a L-1 or H-1B visa holder won't meet the substantial presence test during the first year and will file their year end tax return as a non-resident alien (form 1040NR) which has less deductions and credits but worldwide income is not reported. Because of the uncertainty of how much taxes will be owed when filing form 1040NR, the government wants those individuals to fill out the W-4 as single so that higher withholding will be done and the visa holder will probably get a refund when the year end taxes are filed.

After the first year, the visa holder will file as a resident (form 1040) so normally those visas holders would file like any USC.

However there is a gotcha when a spouse is also working whether a visa holder or a USC. The standard deduction and marginal tax brackets are about double the amount for married filing jointly compared to filing single or married filing separately. This is great for anyone that is married since it taxes the income as if each made half of the income whether one or both were working.

Now the problem with filing out the W-4. If the primary visa holder fills out the W-4 as married filing jointly and took allowances for the spouse and children, everything is approximately correct as far as withholding as long as the spouse isn't working. However if the wife is also working and the husband filled out the W-4 that way, the withholdings from his salary is already calculated to account for married filing jointly and all the allowances that were claimed. Therefore the wife's income would be taxed at the highest marginal tax bracket since it is in addition to the husband's income. If the wife also claimed married filing jointly plus all the allowances on her W-4, her employer would assume that was the only income in the family and calculate the withholding taking in to account the double standard deduction as well as all the allowances and lower marginal tax brackets since the W-4 doesn't ask about a spouses income or how the spouse filled his W-4 and the two employers don't communicate that information to each other. If the wife filled out the W-4 like that, there would be severe under withholding. To normally avoid penalties and interest for under withholding, withholding must be at least 90% of the taxes owed (other situations also apply where you may not be accessed penalties and interest).

The following is a link to a tax calculator and below the tax calculator are the marginal tax brackets. I'll use that tax calculator and marginal tax brackets to try to demonstrate how everything works.

1040 Tax Calculator

Tax Calculator:

Husband's Salary: $100,000
Wife's Salary: $0
Children: 2 - age 8 and 10
Filing: Married Filing Jointly
Standard Deduction: $12,400
Exemptions: Dependents=2, Dependents qualifying for child tax credit = 2, Personal exemption checked, and spouse exemption checked.

This gives total deductions of $28,200 leaving a taxable income of $71,800 and the federal income tax on that is $9,863 but is reduced to $7,863 due to the $2,000 child tax credits. We can use the marginal tax brackets to figure out how that was calculated. The $28,200 was taxed at 0%, $18,150 was taxed at 10%, and the final $53,650 was taxed at 15%.

$28,200 @ 0% = $0
$18,150 @10% = $1,815
$53,650 @15% = $8,048

Income $100,000 taxed $9,863 minus $2,000 tax credit equals taxes owed is $7,863.

If the husband fills out his W-4 just like he claims on the tax return, the company will withhold about 7.86% each pay period for federal income taxes and when taxes are filed at the end of the year, taxes owed will be very close to taxes withheld assuming there is no other income.

If the wife starts working and makes $50,000 and we add that as income in the tax calculator, federal income taxes go from $7,863 to $22,163. The reason is that the additional earned income is just more income that will be taxed at the higher marginal tax brackets. Of that $50,000 additional income, $2,000 will be taxed at 15% and the $48,000 will be taxed at 25%.

Even if the wife fills out her W-4 as single with no dependents, no child tax credits, no personal exemption, and no spouse exemption, that income is going to be way under withheld since the employer will only withhold $6,806 from the wife's income which is added to the husbands withholdings of $7,863 which is about $7,000 too little withheld of the $22,163 owed for the combined family. The reason that the wife's income is under withheld is that the husband claimed the married filing jointly status and all the allowance when he filled out the W-4 which left nothing left to claim on the wife's W-4 but the employer still calculates a $6,200 standard deduction and taxes part of her income at 0%, 10%, 15%, and 25% to calculate how much should be withheld when the full amount of her income should have been taxed at 15% and 25%.

How do you resolve this issue? There are complicated instructions for the W-4 as to how each spouse is supposed to fill out the W-4 so that taxes withheld will come out equaling that $22,163 owed. An easier way would be to use the calculator to figure out how each should file out their W-4 forms. In the above example, if each filled out the W-4 as single and take an allowance for 1 dependent each plus the personal exemption (2 allowances total), the taxes withheld will be very close to what is owed.

Using the tax calculator with each claiming single, 1 dependent, and the personal exemption:

$100,000 will be have federal taxes withheld of $17,331
$50,000 will be have federal taxes withheld of $4,931
Total taxes withheld from both the husband and wife will be $22,262 which is slightly more than the $22,163 estimated and a refund should be issued when a tax return is filed.

The government doesn't care (except for non resident aliens) how someone fills out the W-4s but is only concerned that at least 90% of what is owed is withheld. W-4s can be changed several times per year to compensate for bonuses or exercised stock options that are usually withheld at a 25% rate and often the rate should be higher. This eliminates any need to file quarterly estimated tax payments when unexpected income occurs and extra taxes will be due. Therefore when a husband and wife gets their pay stubs, the yearly combined incomes can be projected for the year and the tax calculator can be used to make sure that the correct amount is being withheld and if not, they should change their W-4s.
Thank you for going into so much detail, this is fantastic and he's, it is complicated over here! But this will be a real help, thanks again
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Old Dec 28th 2014, 3:29 am
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Default Re: Tax filing as married non resident aliens

Originally Posted by Justabbi76 View Post
Thank you for going into so much detail, this is fantastic and he's, it is complicated over here! But this will be a real help, thanks again
It gets even more complicate than that if someone itemizes deductions. If someone has deductions that exceed the standard deduction, then they itemize deductions and the total of the itemized deductions replace the standard deduction in the calculation.

People often itemize deductions if they own a home as their primary residence since mortgage interest and property taxes are itemized deductions and so are state income taxes paid and if a state doesn't have an income tax, they use a table to get a figure of the estimated amount of sales taxes that they paid or you can calculate your sales tax paid if you have large purchases such as cars. There many more possible deductions but those are the big ones. Any amount above the standard deduction reduces taxes at the highest marginal tax bracket rate. The following is an example for the above couple making $200,000 combined income.

Using the standard deduction they will pay $35,350 in federal income taxes.

Using itemized deductions and owning a home, this may be an example.

$500,000 30 year fixed home mortgage loan at 4.50% equals about $31,000 in interest during the first year.
Property taxes equals about $7,500
California state income tax = $16,000
Donations = $500
Car registration Fess = $1000

Total itemized deductions = $56,000
Deduction for exemptions = $15,800
Total deductions = $71,800
Federal income tax owed = $26,163 instead of $35,350.

When someone itemizes deductions and has a high income and high deductions as a percentage of their total income, the federal tax owed possibly may be higher than indicated since there is a thing called Alternate Minimum Tax (AMT). However most people use a tax preparation program such as Turbo Tax and it calculates everything as it should be including possibly AMT to file their year end tax return. Also there is unearned income such as long term capital gains and qualified dividends that are taxed at 15% maximum for incomes below $450,000 and 20% above that instead as normal income. Besides that, there a child care tax credits (credits against taxes owed and not income) that can be taken if both parents are working as well as energy saving tax credits (solar or wind installations or energy efficient cars (maximum $7,500 for electric or hybrid vehicles)).

Federal Tax Credit for Electric Vehicles Purchased in or after 2010

There are also pensions such as 401K which reduces the income before taxes are calculated. In the above example, the employee contributes $10,000 to a 401K plan during the year. In that case, the W-2 at the end of the year will only indicate an income of $190,000 instead of $200,000 as if the $10,000 never existed. There are also Health Saving Account (HSA) and Flexible Savings Accounts (FSA) offered by employers which can reduce the income further.

Last edited by Michael; Dec 28th 2014 at 4:06 am.
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Old Dec 28th 2014, 4:00 am
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Default Re: Tax filing as married non resident aliens

Perhaps a moderator will move this thread to the general USA forum... since taxes aren't really an immigration issue.

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Old Dec 28th 2014, 3:04 pm
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Default Re: Tax filing as married non resident aliens

Originally Posted by Justabbi76 View Post
Hi guys,

My husband is here on an L1 and a,ready working for over 1yr.
I on the other hand am an L2 and just filling out my first W4 to start work in January.
The form indicates that if I'm married to a nonresident alien then I should file as single, how does that work as we are a married couple, we both file single?

Thank you πŸ˜„
I glanced through the detailed answers from Michael, and I may have missed it, but I don't see the most important point: if your husband has been living and working here for over a year and you've been living with him, then neither of you are non-resident aliens, you are both resident aliens, and in fact are tax-resident for all of 2014, since you fulfill the IRS substantial presence test.

Bear in mind there is a difference between US tax residency, which is relevant for this thread, and US permanent residency, which is immigration-related, and irrelevant.
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Old Dec 30th 2014, 10:59 pm
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Default Re: Tax filing as married non resident aliens

Originally Posted by Justabbi76 View Post
Hi guys,

My husband is here on an L1 and a,ready working for over 1yr.
I on the other hand am an L2 and just filling out my first W4 to start work in January.
The form indicates that if I'm married to a nonresident alien then I should file as single, how does that work as we are a married couple, we both file single?

Thank you ν ½νΈ„
You're not non-resident aliens for tax purposes if you've been in the US that long, after 183 days you're considered resident for tax purposes (absent any of the other tests, such as intent to be resident). Have a read of IRS publication 519 which explains it all in great detail.

So you are both resident and you file as married, same as anyone else would.

As explained in publication 519, for the first calendar year you are in the US, you are supposed to file a dual-status return, this is essentially a 1040NR for the part of the year before you moved and a 1040 for the second part of the year after you moved which has to be completed in a specific way (basically some credits cannot be claimed because of the partial year). Dual-status returns cannot be filed jointly.

If you actually were a non-resident alien, you would have to state that on question 6 on W-4 but you clearly aren't, from what you've said.

Last edited by Steve_; Dec 30th 2014 at 11:03 pm.
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