Hi,
I am in US on L1 visa since July 28, 2007. I have declared on my W4 form that I am married and have one kid. They are dependent on me. As of now they are residing in India and will join me in Jan 2008. I have got 3 points because of my declaration and my taxes are deducted at source based on the above details. Can I file my returns under "Married filing jointly" option? Please do let me know.

Thanks in advance,
Ajay.

What you put on W4 is not same as what you have to put on your tax return. Also your withholding federal and state income taxes are not same as paying tax. W4 is your instructions to the employer, how much taxes they should withhold.
If for 2007, you file as resident alien for tax purpose, then you can also elect to treat your wife as resident alien and file Married Filing Jointly. You can't claim your kid on the taxes, as he/she is not a U.S. citizen or resident.

MukatA's guidance is accurate EXCEPT for the provision about not being able to claim the child as a dependent.

The guidance in IRS Pub 519 was NOT CLEAR regarding HOW to treat children of couple who CHOOSE to be treated as resident aliens for all of 2006 (the latest IRS Pub 519 addresses the 2006 tax year).

For this reason, I called the IRS International Tax Hotline on THREE SEPARATE OCCASIONS to seek clarification on this issue.

This was the guidance given ALL three times: If the married couple qualify to file jointly and CHOOSE to be treated as resident aliens for the entire tax year, then residency status for ALL of their children is IMPLIED to the children as well. The only requirement is that the children MUST be in the custody of EITHER parent for the entire tax year.

Hence, if one spouse is working in the U.S. and the other spouse is in the home country with the children in his/her custody for the entire tax year, then the couple can file jointly, choose to be treated as resident aliens for the entire year, and CLAIM THEIR CHILDREN as dependents for that year as well.

Further, because the children are considered to be residents as well, the children WILL qualify for the Child Tax Credit. They do NOT, however, qualify for the Earned Income Credit.

I filed at least 30 tax returns using this guidance for tax year 2006, and each return was processed and the full refund (to include the Child Tax Credit) was issued without incident.

ATE, I'm not sure here but I'm really not convinced that the IRS is right. I don't see anything in the regulations that permits the child to elect residence (only the non-resident spouse). In contrast, when you look at the regs on the SPT and the first year election, the regs seem pretty clear that a child may also make the election but must qualify (for example by meeting the 31 day requirement). See below. So I guess I remain skeptical that the IRS has this right. I'd like to see more supporting evidence before I was fully convinced.

Reg § 301.7701

Election on behalf of a dependent child. An individual may make an election on behalf of a dependent child (as defined in paragraphs (1) and (2) of section 152(a), without regard to section 152(b)(3)) if the individual is qualified to make an election on his or her own behalf, the child qualifies to make an election under this paragraph (c)(3), and the child is not required by section 6012 to file a United States income tax return for the year for which the election is to be effective.

This is about Students Apprentices from India copied from Publication 901: Tax Treaties.
"Students and Apprentices
An individual who is a resident of India immediately before visiting the United States and who is temporarily in the United States primarily for studying or training is exempt from U.S. income tax on payments from abroad for maintenance, study, or training. The exemption does not apply to payments borne by a permanent establishment in the United States or paid by a U.S. citizen or resident, the U.S. Government, or any of its agencies, instrumentalities, political subdivisions, or local authorities.
Under the treaty, if the payments are not exempt under the rule described above, an individual described in the previous paragraph may be eligible to deduct exemptions for his or her spouse and dependents and the standard deduction. The individual must file Form 1040NR or Form 1040NR-EZ to claim these amounts. For information on how to claim these amounts, see chapter 5 in Publication 519.
The individual is entitled to these benefits only for a period of time considered reasonable or customarily required to complete studying or training."

So ajajcv from India can claim his dependents, but from the very first year he must pay taxes on income from the U.S. sources, and must file as non-resident alien.

This is about Students Apprentices from India copied from Publication 901: Tax Treaties.
"Students and Apprentices
An individual who is a resident of India immediately before visiting the United States and who is temporarily in the United States primarily for studying or training is exempt from U.S. income tax on payments from abroad for maintenance, study, or training. The exemption does not apply to payments borne by a permanent establishment in the United States or paid by a U.S. citizen or resident, the U.S. Government, or any of its agencies, instrumentalities, political subdivisions, or local authorities.
Under the treaty, if the payments are not exempt under the rule described above, an individual described in the previous paragraph may be eligible to deduct exemptions for his or her spouse and dependents and the standard deduction. The individual must file Form 1040NR or Form 1040NR-EZ to claim these amounts. For information on how to claim these amounts, see chapter 5 in Publication 519.
The individual is entitled to these benefits only for a period of time considered reasonable or customarily required to complete studying or training."

So ajajcv from India can claim his dependents, but from the very first year he must pay taxes on income from the U.S. sources, and must file as non-resident alien.

MukatA,

What you have quoted above relates to only to people from India and only applies non-residents who come here temporarily to study. I don't believe the OP fits that if he is here on an L1 visa.

Tex

TTE,

I was at first skeptical when I spoke with the IRS representative. That's why I called back and re-submitted the question twice more. The answer was consistent all three times, however, as noted above.

Further, it seems both fair and consistent that if the U.S. government is imposing an income tax on ALL of the couple's world-wide income (when they choose to be treated as resident alien for the entire year), that they should be allowed to claim their children as dependents for that same period.

After all, a resident alien couple who is in the U.S. for part of the year would be allowed to claim the U.S.-based children as dependents as well. What's good for the goose is good for the gander.

Like I said, I have filed at least 30 returns with ITINs for children and spouses, many of whom were not in country.

There WERE some difficulties in getting the ITINs issued (due exclusively to either the ITIN center misinterpreting the visa type listed on the W-7 OR to a problem with the certification of the passport photocopy).

However, to date, NOT ONE RETURN from 2006 has been sent back disallowing the dependency exemption of children not present in the United States.

Since we are about to start the next tax season, I do not anticipate that any of those returns will be rejected. At least, that is my sincere hope and desire.

ATE,

I remain a little skeptical and I would like to know on what basis they are making that judgement. It does make some sense, you are right, but I've also read that one of the reasons that foreign children were originally denied was because of the difficulty the IRS facing in verification.

I'm not sure the fact that the exemptions get through the initial processing is really what would concern me. It's more whether they would pass through an audit.

But at least this was information they gave you and it sounds like you've checked it several times!

The initial verification of the child's existence is done when the ITIN is issued. That is when I EXPECTED there would be a problem, or at least they would ask to see an entrance visa (H4/F2/L2), but it did NOT happen. To my knowledge, all of the ITINs were issued to children with little problem.

Except for one client, the cases where the ITIN was not initially issued was with a spouse, and in each case, we got it resolved one way or another.

One of the really frustrating cases was when the ITIN processing center rejected passport "true copy" certification of the passport photocopies done by the Indian government. This contradicted the instructions attached to the W-7, and caused some real confusion. It was excarbated by the fact that we could not contact the ITIN processing center by phone to ask WHY.

The phone problem has since been resolved, but, going forward, I am telling clients and posters to get the passport photocopy certified by either the IRS itself or the U.S. conculate or embassy in their home countries.

Thank you all for providing me with this information. Appreciate your help.

Thanks,
Ajay.

Glad to help!

My wife is still in India and I am filing for an ITIN. My questions are:

1. Can I file for an ITIN and get it authorized by the IRS Agent?
2. Can I sign on the W7 form on her behalf?

Thanks,
Ajay.