vivid291

Thank you so much for all of this info and advice. I must confess that the tax system is a complete minefield for me and so I'm essentially leaving a lot of the work to my husband though due to the nature of this year's filing, he's also having some issues and this info is a real help to both of us. You're bringing up and clarifying things he's spoken to me about not being sure of, so on behalf of him as well as myself, just wanted to say thanks again.

theOAP

Good catch, Jasskatten. Brain fade on my part. I used the wrong wording in my reply. I said "......the declaration and the election which commits the taxpayer to the requirement to always file MFJ in the future.....". I should have said ""......the declaration and the election which commits the taxpayer to the requirement to always file as a resident in the future.....

Although Pub. 54 is for US expats, it contains the most complete explanation of a non-resident spouse treated as a resident that can be found. For either, a dual status US resident making the election or a US expat's non-resident spouse making the election, the rules are the same. It states:
"If you make this choice, the following....rules apply.
You and your spouse are treated, for income tax purposes and purposes of wage withholding, as U.S. residents for the tax year in which the election is made and all future tax years until the election is terminated or suspended because neither spouse is a citizen or residentof the United States at any time during a year." [bold mine]

This may, or may not, concern any UKC spouse making the election. The consequences could result in a large future financial disadvantage, particularly if the UKC marries a USC, is resident in the US, makes the election, and then returns with the USC spouse to the UK (or elsewhere) without becoming a US citizen - as some on this site have done/may do. If they return to the UK as a US citizen, they have already lost the advantage. IRS statements often lead to more confusion than enlightenment.

theOAP

On behalf of all those who have contributed, thank you for your kind words.

samills610

The above makes for good reading as I prepare for my first tax return, especially, as quoted above, it is a bit of a minefield for those new to it. Thank you BE

I moved over in February on a CR1, my wife having moved November a few months before. I had worked 1 month at that point in the UK, and don't have any assets or investments other than my employer paid pension. I have been working in the US and paying tax since end of February, and my wife has been working the full year.

We were planning to file jointly - are there any reasons not to? Looks above like this could cause future implications if we moved back to the UK before I became a USC? Is that the only issue - and why could this be an issue please?

theOAP

Unfortunately, as of yet, no one has released an app which accurately predicts the future.

Some may live the rest of their lives in the US as a US resident for tax purposes and never acquire US citizenship - remaining an UKC only, in which case the discussion becomes a moot point. Some may acquire US citizenship as soon as able, so again, this becomes a moot point. Some may not become a US citizen, remain a UKC only, eventually returning to the UK either on their own or with the US spouse. The discussion then becomes relevant.

Electing the option (MFJ) commits the taxpayer to filing 'as a [US] resident' (therefore a US Person) for the year the election is made. For the year of the election both alien and US spouse must file MFJ; in subsequent years they may file MFJ, MFS, or HoH, but the alien must continue to file yearly US tax returns as a US resident (US Person).*

*"you and your spouse make an election for you to be treated as a resident alien for the entire calendar year and all subsequent years until terminated."
https://www.irs.gov/taxtopics/tc851

Read carefully how a termination is made and the consequences of termination.
Suspending the choice:
"The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a U.S. citizen or resident alien at any time during the later tax year."** (Is the USC intending to renounce US citizenship? Also, a USC is always resident in the US no matter where they physically live.)
Ending the choice:
"Once made, the choice to be treated as a resident applies to all later years unless suspended... or ended in one of the ways shown in Table 1-1."**

"If the choice is ended for any of the reasons listed in Table 1-1, neither spouse can make a choice in any later tax year." **(The forever clause) [bold mine]
**https://www.irs.gov/pub/irs-pdf/p54.pdf


Scenario: non-US citizen spouse residing abroad (UK), as I understand it:

Non-US citizen spouse is a resident for US tax purposes:
A US Person (a resident for US tax purposes) must file a US tax return declaring all UK income, all UK assets, and complete all informational filings - world wide, no matter where they physically reside (UK).

Non-US citizen spouse is not a US resident for tax purposes: (if with a USC spouse , USC spouse files MFS)
A non-US Person (a non-resident for US tax purposes), once in the UK, may have any UK income, hold any UK assets, have any UK gains, own any UK property, acquire any UK financial accounts unavailable to US Persons (FATCA), hold a UK mortgage, etc., with no obligations to report anything UK sourced to the IRS (although a USC spouse may need to include joint accounts).

As I understand the above, once made, the elected status 'as a resident' does not change when relocating countries. I repeat my comment from a previous post: IRS statements often lead to more confusion than enlightenment.

Jasskatten

I think you read that wrong, it does not AUTOMATICALLY change when you relocate countries, but table 1.1 lists the way it can change anyways. The first way it could change is by writing to IRS and telling them that you do not want to be treated as a resident anymore:

From Table 1.1
"Revocation: Either spouse can revoke the choice for any tax year."

The part about not changing again is referring to changing BACK to being treated as fulltime resident even though you only spent part of the year in US. You can only make that choice once.

So the consequences would not come when you move back to UK, it would come if you would move to the US yet again, or started working in the US but were based in UK after revoking the choice.

theOAP

The election to be taxed as a US resident carries over automatically when changing countries unless a revocation is made for a year prior to leaving the US. The revocation applies to the year selected, and all years after, even if filing a 1040X. It would seem pointless to make the election for the first year in the US only to revoke the election for the last year in the US to avoid the US resident status whilst in the UK, but then again, every situation is unique. If revocation is desired to avoid US resident status while in the UK, the first year back in the UK would be the opportune time.

The revocation (termination) could be made while continuing to live in the US, but what would be the point for doing that after having made the election in the first place?

The resident status carries forward to the UK automatically (unless revoked prior to leaving). Therefore, the individual is subject to US reporting obligations in the UK until the revocation is made, which could be the first year back in the UK. But, no matter when the revocation is made, if at a later date they return to the US as an alien, they may not make the election to file MFJ ever again as an alien. The USC spouse is also effected.

Which is why I made several references to the 'forever clause' in previous posts. There are two separate issues. The consequences of being taxed 'as a [US] resident' occurs when back in the UK, which could give cause for a revocation. The second, the consequences of the revocation, occur if returning yet again to the US after being back in the UK. I think your understanding of the second part is right. Multiple Atlantic crossings have occurred to some BE members.

For someone working for a US company/client while based in the UK, the first taxation rights belong to HMRC. It's where the work is performed that makes the determination. If they are also a US Person (because they haven't made a revocation), they would have to complete a US return and use FEIE or FTCs to offset US tax. If they have revoked the choice prior to accepting work in the US while based in the UK, they owe no reporting to the US unless the company (incorrectly) makes US tax withholdings. There have been several instances where US companies get this wrong.

Jasskatten

I think you got everything correct, apart from mixing up married filing jointly with filling as a resident again. Also, it is not that you can't file as a as resident again if you are an alien, it is that you can't ever again file as a full year resident you are a dual status taxpayers or one spouse is living abroad.

IMHO, you are complications something that is fairly straightforward.

1. If you are a US resident or a citizen , your spouse can be treated as resident for tax purposes even if they are loving abroad, if both spouses agree to this choice.

2. The spouse is then treated as a resident until either noone in the marriage is a us resident or citizen for the entire year, or your revoke the choice, get divorced, die, or irs choose to revoke the choice because you are not filling your taxes properly.

3. If you revoke the choice, you may not change your mind again, so if your spouse is still living abroad, or chooses to move abroad, they must now file as a non resident alien. That also means they can't file married filing jointly (I am not sure if that is true if a us citizen moves abroad and the us resident starts in the country?)



​​​​​​So wether you can file as a resident or not is kind of straight forward, the consequence of the choice might be hard to foresee, if you have complicated and large investments.

If you are making the similar, but not the same, choice to be treated as a full year resident even though you were a actually a resident of two countries during the year, it is even easier.

1. If you were not a are resident at the start of the year, are a resident at the end of the year, married to a US resident or a citizen at the end of the year , and both spouses agree to this choice, you can be treated as a resident for the whole year.

2. You are then treated as a resident until you move out of the US. For the last year in the us, you can choose to be treated as full year resident, or dual status taxpayer, starting from the date you either move out (if your are not a permanent resident) or the date you revoke your green card (if you are a permanent resident).

You can make this choice again if you move back to the us a second time.

theOAP

I'll stand by my last post.

All of it.

Jasskatten

Ok. Anyways my point was that both posters who asked about this are dual-status aliens, who can choose to be treated as US residents if they want to. They are not "Non-Resident Spouse Treated as a Resident". The water was muddied earlier imo, including in some of my posts. Future implications for these posters are mitigated by the choice not being final.