EP 7: Wedding Bells Are Ringing? Humdrum Tax & Financial Implications Follow!
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Just about everybody loves weddings, and all that goes with them but when they cross international boundaries, the real fun begins.
In this episode, your co-hosts Jane Mepham, CFP, and Manasa Nadig, EA, dive into some of the challenges of a U.S. citizen marrying a non-U.S. citizen.
They examine the case of a couple who just got married and the non-U.S. citizen is still outside the U.S. What are the tax-filing options available to this couple?
You'll be surprised, at the findings they come up with.
The views and opinions are those of the speakers, and should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.
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Speaker 1 (00:06):
Welcome to the International Money Cafe podcast, the show where we filter out the noise on cross-border taxes, finances, and life in the us. I'm your host, Jen Metham, CFP.
Speaker 2 (00:18):
I'm your host Ade. Yay. Join us on this journey as we explore these unique challenges facing us, inbound outbound families and businesses onto the show.
Speaker 1 (00:29):
Hey, mana, I'm curious, what have you been up to lately?
Speaker 2 (00:32):
Funny that you ask. I've attended not one but five wedding ceremonies so far this year and it's only September. I'm such a sucker for love stories, but five ceremonies, that's quite a lot.
Speaker 1 (00:48):
That is a lot. But again, considering what the topic of today's podcast is going to be, I think that should be fine. So do you want to go into what the topic is going to be and what we're going to be talking about?
Non-U.S. Citizen Marrying a U.S. Citizen
Speaker 2 (01:02):
I know today's topic is wedding bells are ringing. I must say it's not just all the ceremonies I attended, but this is podcast Jane that I've started listening to since we started to talk about doing this podcast and it's very cute. It's called Two Fat Expats and they had an episode called Expat Love Stories and they talk about these expat who went abroad and they're US citizen and they met and fell in love and married somebody outside the country and you know me with my tax hat on all the time. I was sitting and thinking about, this is interesting. I wonder, Jane and I should talk about what this means tax wise and financial planning wise when someone who's not a US citizen gets married to a US citizen and what all that entails on your taxes and all the planning opportunities and all that and what it would mean if it's non-US citizen, they all decide to stay abroad or they come back to the US or one of them comes back to the us how do they file taxes? What do they do with their investments and what do they do with their overseas assets? Who has what and estate planning and gift planning and all of these thoughts that ran through my head and like did I say I'm a romantic and a sucker for love stories?
Financial Challenges of Non-U.S. Citizen Marrying a U.S. Citizen
Speaker 1 (02:42):
You did. I think what I'm going to do is I am going to bring us back to the money portion of the relationship. Right. I love that. So let's talk about specific and unique financial challenges and tax challenges that come in, as you said, when a US citizen marries a non-US citizen and the different ways of looking at the financial planning aspect of it, and a lot of it will sometimes depend on who's bringing what into the relationship. So we'll think about a case where the non-US spouse is the one that's bringing in lots of assets and then we'll also talk about where the US spouse is the one that's bringing in a lot of assets and of course the pros and cons in different ways of looking at things. One thing right now, if the US spouse is in the US and the non-US house is overseas, things like currency exchange considerations come in when it comes to things like how much are the assets?
Tax Implications
Speaker 1 (03:45):
What, because that always comes into the picture. We could maybe talk about a prenup, but that's probably something that you'd really want to talk to professional about. So we're not going to dwell on it now, but actually I think for today's episode I'd love to go back to really talking about, because there's so much that we can talk about. Let's just talk about the tax implications. We know they have to file taxes, so the question is how should they be thinking about filing taxes and what are the implications of each choice? Do you want to go into some of that?
Filing Statuses
Speaker 2 (04:19):
Yes. Before we really start digging into that, let's take a bird's eye view on different filing statuses one can use when they file their taxes in the us. In a sense, I think this is unique to the US' way of filing taxes. There are different filing statuses and ones that are relevant to today's topic would be married filing separate ahead of household and married filing joint. So quickly married filing separate is a filing status you use when you are married, but you need to file separately from your spouse. And there are many reasons, and we won't go into that today, but that's one of the statuses. Then we have a status called the head of household and basically this is a status that someone can use if they have dependent and these dependences have to pass a dependency test, most important of which is that they have to either be living with the taxpayer in the US if they are not a US citizen or if they are living with the taxpayer abroad if they are a US citizen.
Speaker 2 (05:42):
So that's a filing status called the head of household. And then the one that we want to really explore today is the one that is the married filing joint. You may know this, let's go back to it quickly, is US is one of the very few countries or it's just possibly one of two countries where you're required to file a tax return based on citizenship. So if you live anywhere outside the US, it doesn't matter just because you are a citizen and in most cases if you are a green card holder, you have to file a US tax return. Having said that, if you are a US citizen, you are living wherever in the world, you have to file a tax return and then you get married. So if you marry another US citizen, even if you're a broad no-brainer, you file jointly separately, head of household, whichever all of these options are available to you.
Speaker 2 (06:45):
But if you marry a non-US citizen who doesn't even have any kind of visa status with the us, then that presents a unique opportunity. Like you said earlier, there are many things that when you get married, things change and the spouse brings in their financial assets or not into this relationship, and then you are provided with all of these planning opportunities, bird's eye view, the married filing jointly option is available to you as a US citizen, even if you are married to a non-US person, whether they have never been to the us, they have no social security number, no visa status, none of that. And you do that by filing an election under section 6 0 1 3, the 60 13, and by filing this election you can then both of you file a married filing joint return. This of course has a much bigger connotation to probably the foreign person than it does to the US citizen. Say as a US citizen, nothing really much changes for you because you are continuing to declare your worldwide income and assets. But now the foreign person who decides to elect to file jointly with the US citizen then has to declare their worldwide income and their worldwide assets to the United States.
Speaker 1 (08:28):
Whoa, that blows my mind,
Speaker 2 (08:30):
Right?
Speaker 1 (08:31):
Because I'm thinking, hey, somebody who's not a US citizen and now we are having them file as a US citizen would, right? So file I guess as a US tax resident, which it's mind blowing, but I guess that's why we talk about some of these things and as you said, it does mean now they come into worldwide income taxation, pay fix and all that. So how about you give a use case study of why somebody might want to file married with a non-US spouse who lives outside the country? I think that would make it more realistic, would you think?
Speaker 2 (09:05):
Absolutely. Okay. Let's say there's John and Sarah. Let's say John is a US citizen and Sarah is a UK citizen and like you said earlier, in any marriage when there are two people who have the option to either file jointly or not, but even if we are not talking taxes, there are all of these financial assets that are coming into the relationship relationship and now tax is just one of the competence of it of course. And there are many other financial planning opportunities which you help people with, but focusing on this particular use case, let's say that Boo John and Sarah are equally wealthy. By wealthy we mean they have substantial bank accounts and financial assets, maybe brokerage accounts in the US and in the UK and retirement accounts and pensions and so on and so forth. Each of them is equally wealthy because this is the UK we are talking about the tax brackets in the UK are also pretty much on par with the US tax brackets. So let's say John and Sarah are a high net worth a high income couple, then what does it mean to them if they make this election under 6 0 1 3 to file jointly? What does a change for Sarah individually in terms of all of this information that now she has to give to the United States government?
Assets Ownership
Speaker 1 (10:39):
So obviously in addition to what you just mentioned, I guess we have to think about fix and everything that Sarah owns overseas. Let's continue anyway and talk about in terms of asset ownership, what assets can they own in the US especially for this new person, the non-US citizen, we know they can consider joint ownership. We know they can own them separately, but really we know they can own assets, rental property, hold investments with really pretty much this non-US citizen can't own just about anything in the us. The key thing is, and the key consideration is how they're going to own them, how they're going to title them because of estate planning issues. I do want to point out that it's important that if they're not going to file together, like you've explained, that the non-US citizen not commingle their non-US assets with the new US assets that they're going to be. Anything else you want to add to that estate planning bit?
Jointly Held Assets
Speaker 2 (11:45):
Yes, Jane definitely gives us another point of discussion for those who may have to plan their estate both in the US and in the country where they decide and we have to think about that plan and how important it's going to be, especially if both the US citizen and their spouse, who's the non-resident or non-US citizen, how would that plan change if these US side assets are jointly held? And what would also happen to the estate and gift planning options with all of the assets that were owned by the non-resident spouse in their country. For example, if the foreign born spouse has substantial assets in the country where they're from, then at what income or wealth level would there be a tipping point as far as tax brackets filing jointly versus separately or even for estate planning purposes to be able to take the annual or lifetime estate or gift planning exclusions. So that's one thing to consider as well as how is the non-resident spouse going to go forward with declaring all of their foreign assets to the IRS and to the US government and what are the planning opportunities we have in terms of the retirement contributions that can be made and other investment options and so on.
Estate and Gift Planning
Speaker 1 (13:12):
It almost sounds like, oh, it's coming down to really the estate and gift planning where an NRA is married to a US citizen and because it's such a complicated path to navigate, to say the least, you've already alluded to some of it, it's going to come down to the annual gift exclusion limits, marital deductions, the gift and estate lifetime exclusions, where the assets are located. You've touched on some of that, the definition of domicile, which you and I know it's probably one of the most complicated definitions when it comes to nras or non-resident aliens. So we'll address this in the next episode. Can you think of anything else we want to add to this or do we want to call it a wrap?
Speaker 2 (13:57):
Yes, this was a great discussion, Jane. I think we touched upon a lot of different points today. Mainly the things that I would like for our listeners to take away by the end of this is one, the tax filing options, which is of course an annual event and then the big picture as far as what wealth they have, what assets they have, and of course what options and planning opportunities arise for their estates and what they can gift each other to probably bring down their lifetime exclusion or estate tax or gift tax from the US side if they were subject to that. Those are things that I would definitely want the listeners to think about. And of course, we'll put links to the resources we have been talking about today in the show notes on our website, the i amca.com and like we always say, do please subscribe and share our episodes. And we love being here and we love talking about all of these topics and we are looking forward to bringing your more episodes. Signing off today. This is Man Nadi, I'm off, but not to another wedding for some time, at least this year.
Speaker 1 (15:15):
Enjoy the weddings. Bye bye.
Speaker 3 (15:18):
Thank you for listening to the International Money Cafe podcast. The content is for informational and educational purposes only and should not be used as a substitute for professional advice. Seek the advice of your qualified service provider with any questions you may have regarding your cross order finances and tax needs.