Published Aug. 08, 2025 01:24AM EDT
Advantages to Nonresident Spouses Being Treated as US Tax Residents
If you are a US tax resident and your spouse is neither a US resident nor a US person, you can still elect to treat your spouse as a US tax resident. See IRS Publication 54 (Link). This can have substantial tax benefits for couples because it allows them to take advantage of the lower tax brackets and higher standard deductions provided to persons filing as married filing jointly. Assessing this option is thus important to do, and worth raising with your tax attorney or tax preparer, when one spouse is a US resident for tax purposes and the other is not. The following outlines the key considerations for why this can be advantageous; a subsequent post will discuss how to make the election.
The first major effect of treating your spouse as a US resident is that his or her global income will now need to be reported to the IRS. This, by itself, will always raise your tax burden in the United States unless that global income is entirely US- sourced such that it is already being reported (which is possible but uncommon).
This increase is reduced, and even reversed, through the three factors:
#1 – Increased Standard Deduction and Lower Tax Rates
As noted already, being able to file jointly as a married filing has benefits for both the US resident and the non-US resident. This filing status gets a higher standard deduction ($29,200 vs $14,600 in 2024) and tax brackets that start at higher levels (the 32 percent rate, for example, starts at $383,900 vs $191,950 in 2024).
#2 – Foreign Earned Income Exclusion
If the nonresident spouse has income from overseas, up to $126,500 (in 2024) of that income can be excluded from the return with Form 2555 if certain criteria are met. To be able to claim this exclusion, the nonresident spouse must either be a bona fide resident of another country or satisfy the physical presence test. The second of these is straightforward: it is satisfied if the spouse was in a foreign country for more than 330 days.
The bona fide resident test is more nuanced because it depends on claiming that the spouse’s genuine place of residence is a foreign country. This can be difficult if they have family (namely, the US resident spouse) that lives in the US. That is not, however, disqualifying as the foreign spouse can show their residence in the foreign country through employment, maintaining a residence there, citizenship in that country, and other factors. In short, if the spouse lived in that foreign country without the intent to leave, then the spouse is a bona fide resident of that country.
#3 – Foreign Tax Credit
If the nonresident spouse cannot qualify for the exclusion described above or has income above the exclusion threshold, Form 1116 can be used to claim a tax deduction or credit in the US for taxes paid to another country on the same income.
The combination of these factors can result in substantial tax savings. For example, if the foreign spouse’s foreign income is below the exclusion threshold ($126,400 in 2024), the entire downside of treating that spouse as a US tax resident—namely, taxing their global income—is completely undone because the income is excluded later in the return. That leaves only the advantages of being able to file jointly: a higher standard deduction and lower tax brackets.
That said, there are circumstances in which the Tax Credit approach is more tax advantageous than the Foreign Income Exclusion approach. The best way to determine this is just to prepare two returns and compare the results.
The application of this election is, indeed, very fact-based. Often, a few simulated returns are required to identify the most tax-advantageous approach. For some filers, there really may not be a benefit to jointly filing as married, such that the election is unnecessary. And even when there is, you still need to determine if excluding foreign income is a better approach relative to seeking credit. Mid- Atlantic Law and Tax is happy to work through this analysis with you but, even if you do not work with us, please consult with your tax attorney or tax preparer so they can assess your specific situation.
