Q: What if you live in a foreign country, your spouse is a nonresident alien and does not have a SSN, and all your income was earned in that country and is less than the Foreign Earned Income Exclusion? Would it still matter whether you filed joint or separate returns?
Alberto, Outside the USA
A: Yes, it would. As you probably know, U.S. citizens and residents are responsible for paying tax on worldwide income (the fact that it's under the Foreign Earned Income Exclusion is not material here). Also, a taxpayer considered married at any point in the tax year is considered married for the whole year. So, what to do if you are an American, your wife is not, and you live and work in a foreign nation?
First, the option to file as joint or separate is always available to you. However, for reasons we have gotten into before, going with the MFS status is usually not a good idea. Even here, you need to cite your spouse and her tax ID number, which she doesn't have.
The question remains, though--how do you file a tax return if your spouse does not have a SSN or other type of tax ID number? That's where the Form W-7, Application for IRS Individual Tax Identification Number comes into play. This is used for persons needing a tax ID number, but not eligible for a Social Security number (which includes foreign spouses not in the U.S.) You need to provide proof of identification, and submit the W-7 with your 1040.
In the case you mention, you would file a Form 1040 with your spouse's name and the W-7 attached. If eligible, you would claim the Foreign Earned Income Exclusion and potentially have no federal income tax owed. In future years, you and your spouse would file the 1040 using your SSN and her ITIN. Each year, you would have to attach a statement to your 1040 affirming that your non-resident spouse is associating herself with you for joint filing purposes.
The ITIN is not used for just this situation, though. Other applications include:
- A non-resident alien required to obtain an ITIN to claim a tax treaty benefit
- A non-resident alien filing a U.S. tax return
- A U.S. resident alien filing a U.S. tax return
- A dependent of a U.S. citizen or resident alien
- A spouse of a U.S. citizen or resident alien (the case here)
- Non-resident alien student, professor, or researcher filing a U.S. tax return or claiming an exception
- Dependent or spouse of a non-resident alien holding a U.S. visa
- Other (generally for foreign parties with U.S.-source investment income)
An ITIN is only available to those not able to claim a Social Security number. This is done using the SS-5. Categories of people that can claim a Social Security number are:
- U.S. citizens
- Legal aliens allowed to work in the U.S.
- Legal aliens not allowed to work in the U.S.
- Other (must attach an explanation from a U.S. government agency)