I am a resident alien with a non resident alien spouse who:
(a) Moved to the US in August 2007 on H4, but left shortly afterwards to close ties in the foreign country (in preparation of permanent move in 2008)
(b) Does not meet the substantial presence test in 2007
(c) has no US income during 2007 (but does have foreign income)

We are planning to file married, separately. Since my wife has no US sourced income, I don't believe she needs to file at all. Does she and can I claim the spouse exemption (6b of the 1040)?

Thanks

If you are resident and you have a nonresident spouse, you can both choose to file joint return as residents.

You will get standard deduction of $10,700 and exemptions for both of you.

You must both declare your worldwide income for 2007. If you have any foreign income, and on that income you paid taxes in the foreign country, then you can claim foreign tax credit or file Form 2555 for foreign income exclusion.

Read: Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income

Quote:

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Originally Posted by novocane

I am a resident alien with a non resident alien spouse who:
(a) Moved to the US in August 2007 on H4, but left shortly afterwards to close ties in the foreign country (in preperation of permanent move in 2008)
(b) Does not meet the substantial presence test in 2007
(c) has no US income during 2007 (but does have foreign income)

We are planning to file married, seperately. Since my wife has no US sourced income, I don't believe she needs to file at all. Does she and can I claim the spouse exemption (6b of the 1040)?

Thanks

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Thanks for your answer MukatA.

I initially did my tax return with election as "married, joint" and treated my wife as resident for tax purposes. However this had a number of disadvantageous side effects including:
(1) Making me ineligible for IRA contributions (our MAGI was over the limit)
(2) Pushing us to a higher tax bracket.

So, in the end I also tried filing as married, separately and found that my tax liability was significantly reduced even though I wasn't eligible for the married deduction rate. My wife, being a non resident, with no US income did not need to file.

Based on some of my own reading, it appears that I can claim the spouse exemption when filing as as married, seperate:

Publication 510:
I) Publication 501; http://www.irs.gov/pub/irs-pdf/p501.pdf; Page 9. Personal Exemptions
“Separate return. If you file a separate return, you can claim the exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. This is true even if the other taxpayer does not actually claim your spouse as a dependent. This is also true if your spouse is a nonresident alien.”

ii) IRC. Subtitle A. Chapter 1. Subchapter B. Part V. Sec. 151 “Allowance of deductions for personal exemptions”
“(b) Taxpayer and spouse
An exemption of the exemption amount for the taxpayer; and an additional exemption of the exemption amount for the spouse of the taxpayer if a joint return is not made by the taxpayer and his spouse, and if the spouse, for the calendar year in which the taxable year of the taxpayer begins, has no gross income and is not the dependent of another taxpayer.”

iii) IRC. Subtitle A. Chapter 1. Subchapter N. Part II. Subpart A. Sec. 872 “Gross Income”
“(a) General rule
In the case of a nonresident alien individual, except where the context clearly indicates otherwise, gross income includes only –
(1) gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and
(2) gross income which is effectively connected with the conduct of a trade or business within the United States.”


Based on my reading of the above, it seems that I can take the exemption for my spouse since she had no gross income in the US, and is not filing a return. I would love to hear from any experts who agree/disagree.

I believe you are correct. My situation is similar. I am a resident alien married to a nonresident, and we also have a child (born here in 2007). I am claiming head of household since I am considered unmarried (I am not treating her like a resident) but I am also still able to claim my spouse as an exemption.

I've confirmed this with turbotax.

In certain circumstances, it is more advantageous to file Married Filing Separately, but that is the exception, not the rule.

Most of the time, it is worth the time and effort to get your spouse an ITIN and file jointly.

I think I would still need an ITIN for my spouse in order to claim an exemption when I file as head of household.

Aren't I taxed less if I file head of household anyway in this specific situation?

The HoH standard deduction is HIGHER than that of a single or MFS person, but lower than a couple filing jointly. The same logic applies to the tax rates.

I see- My spouse would still have to claim worldwide income in the case of filing jointly right?

Yes. But then you will file Form 2555 for Earned Income Exclusion or Form 1116 for foreign tax credit, which will wipe out the U.S. tax or make it a very low amount.