Hello all! I'm new here, and this is my first question. I searched the previous postings and did not find a good match to my question, so here goes. I am a U.S. citizen and my wife is a citizen of France. We lived together in the U.S. for many years. Last year, however, my wife moved back to France in order to resume teaching in the French public school system. Having turned in her green card, she is now considered a resident of France by both French and U.S. authorities. For the French authorities, as an employee of the state, working in France, my wife is definitely a French resident and must pay taxes there. I meanwhile remain a U.S. resident, working in the U.S.

Now that our respective countries of residence have been established, I thought that doing our income taxes would be a simple matter. It is at the U.S. end--IRS Publication 519 explains it all. The problem seems to be at the French end, as my wife has now been told that there is no provision in French tax law for married couples living apart, where one resides outside of France. In fact, there isn't even a way for a married couple to file separately -- married couples can only file jointly. In the case of my wife, if she files as married, this means that she must report and pay taxes on my income as well as hers, even though as I as a U.S. resident am obliged to pay taxes to the IRS. On her French income tax reporting, she will fortunately be allowed to deduct a credit equal to the French tax on my income, but I see that this credit does not come close to the taxes I will owe the IRS (probably because married couples enjoy a considerable advantage over singles under French tax law). The result for us then would seem to be a partial double taxation, despite the French-U.S. tax treaty, as full taxes would be paid to the IRS on my income, and a partial tax on that income would also be paid to France.

Or would the tax treaty allow me to deduct from what I owe the IRS the net tax owed the French on my income as the spouse of a French resident? That would be the fair thing to do, but it seems a bit weird to pay a large portion of my income taxes to France, given that I am a resident of the U.S. and work here in the U.S.

In short, what does the law allow us to do in our circumstances? What are our options, and what would be your advice? Is there a way we can pay our French and U.S. taxes at the more favorable married rate, or must my wife to file as a single person in France to avoid my being doubly taxed? If she chooses to do the latter, would that lead to further trouble?

Linc:

It would help our analysis if you told HOW MUCH income was involved, broken down between your and your wife.

"Heaven's net casts wide; though its meshes are coarse, nothing slips through"
The Tao Te Ching

Unlike Heaven's net, the US/France treaty explicitly exempts from taxation in France income earned in the US by a US resident:


ARTICLE 15
Dependent Personal Services
1. Subject to the provisions of Articles 16 (Directors’ Fees), 18 (Pensions), and 19 (Public
Remuneration), salaries, wages, and other similar remuneration derived by a resident of a
Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

You are a resident of the US earning income solely therein. Under treaty none of your income may be taxed in France.

First about the U.S. taxes:
You can file as married filing jointly (MFJ) or married filing separately (MFS).

If you file as MFJ, you must both declare your world wide income. Then you can use Form 2555 or 2555EZ for foreign earned income exclusion or/and form 1116 for foreign tax credit. Read: Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income (http://taxipay.blogspot.com/2008/03/us-citizen-or-resident-with-foreign.html)

If you are able to exclude all the foreign income using 2555, then you do not pay even a penny of tax on the foreign income. If you use Form 1116, you may end up paying very little tax or no tax on the foreign income. Note you get double standard deduction and two exemptions.

Normally, this is how it works for countries other than the U.S. If tax rate of a country is higher than in the U.S. you will end up paying the difference.

This forum is for the U.S. taxes. For French taxes you should consult a consultant in France.