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psylin42 · Sep 12, 2010, 05:10 PM

My son was born in the US. My daughter-in-law was born in India and worked there part of 2009. She married my son in the US in Oct. 2009 and they live in the US. She is unable to obtain the equivalent of a W-2 from India for 2009. She did not work in the US in 2009. She received her green card in 2010. I think she is considered a resident alien now. They want to file their tax return as married filing jointly. Are they required to fill out Form 2555? Because she cannot get a "W-2" from India, will a statement that guesstimates her Indian income suffice and should that guesstimate be included on line 7 of their 1040? Thank you.

wnhough · Sep 13, 2010, 02:35 AM

QUOTE,"She received her green card in 2010. I think she is considered a resident alien now."---That is right. Your daughter-in-law is a permanent resident, as you said, she was married to your son in oct. 2009 and received her green card in 2010.
" Are they required to fill out Form 2555? "---Yes. As you can see, they can use Form 2555 to figure their foreign earned income exclusion andeven thei r housing exclusion or deduction there in India. They cannot exclude or deduct more than their foreign earned income for the year. Form 2555 must be attached to thr form 1040. However, if they claim only the foreign earned income exclusion, a shorter Form 2555-EZ may be used instead.
"Because she cannot get a "W-2" from India, will a statement that guesstimates her Indian income suffice and should that guesstimate be included on line 7 of their 1040?"--To do form 2555, it is possible though your daughter-in-law doesn't have a W2;( however, she may attach a statement to the return explaining the income source. For instance, a copy of the latest check stub that sums up the income can be acceptable). BUt both your daughter and your son( if he has foreign earned income) must declare their worldwide income on the U.S. tax return. However, as she has foreign address, she can't e-file.
". . . included on line 7 of their 1040? "---Yes. Exactly.

psylin42 · Sep 13, 2010, 02:37 AM

What a relief to know that we were on the right track. Thank you so much.

AtlantaTaxExpert · Sep 16, 2010, 07:32 AM

Wnhough:

Sorry, but your guidance that she can use Form 2555 for her 2009 return is NOT accurate.

In order to use Form 2555 to claim the Foreign Earned Income Exclusion, her period of foreign earnings while a resident of the U.S. is NOT long enough (must be at least 330 days). She cannot count anytime prior to 1 January 2009 because she would NOT be considered to be a resident of the U.S. prior to that date.

Instead, she must use Form 1116 to claim the Foreign Tax Credit against the taxes paid on her Indian-sourced income. In fact. That may result in a better tax writeoff than using the Foreign Earned Income Exclusion.

wnhough · Sep 16, 2010, 11:20 AM

QUOTE," She cannot count anytime prior to 1 January 2009 because she would NOT be considered to be a resident of the U.S. prior to that date."---You are absolutely accurate; Matter of fact, I counted the days before Jan 1st of 2009 up to Oct. 2009, shortly before her marriage to his son in the US.So, She is unable to claim her foreign earned income (<330 full days in India).Thanks a lot again.

IntlTax · Sep 16, 2010, 05:41 PM

If the DIL were a U.S. citizen she would qualify for the FEIE. Since she is not a U.S. citizen, she does not qualify. This is discrimination based on nationality. The India-U.S. Income Tax Treaty includes a non-discrimination clause (see Article 26 of the treaty). She can claim the FEIE under the treaty. She would need to include Form 8833.

alooffool · Sep 16, 2010, 09:29 PM

AtlantaTaxExpert wrote

In order to use Form 2555 to claim the Foreign Earned Income Exclusion, her period of foreign earnings while a resident of the U.S. is NOT long enough (must be at least 330 days). She cannot count anytime prior to 1 January 2009 because she would NOT be considered to be a resident of the U.S. prior to that date.

I understand that the above is correct if the DIL is trying to qualify for the Foreign Earned Income Exclusion under the Physical Presence Test. If she lived in India as an Indian citizen for at least one tax year (Jan 1 - Dec 31) prior to 2009, would she qualify for the Foreign Earned Income Exclusion under the Bona Fide Residence Test? Does the Bona Fide Residence Test require her to be a U.S. citizen or U.S. resident alien during that prior tax year in order to qualify (prior to 2009, she would not be)?

psylin42 · Sep 17, 2010, 03:41 AM

Although I am still a little bit confused, I want to thank everyone for their help and guidance. I will find the Form 1116 and Form 8833 and instructions and see what I can do with them. It shouldn't be this hard to pay your taxes, but I am very grateful for all of your advice.

wnhough · Sep 17, 2010, 06:48 AM

QUOTE," If the DIL were a U.S. citizen she would qualify for the FEIE. Since she is not a U.S. citizen, she does not qualify. "---I bet his DIL actually became a US resident alien as she married to his son, a US citizen, under the US tax code on Oct. 2009 and under the US INS code in 2010( when she received her green card).What I mean is that his DIL is able to qualify for " the foreign Earned income Exclusion"; as a US citizen's spouse( or as a US resident alien as long as she passes the SPT as a resident alien under the US Tax Code.The tax code states,"A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months."
Please visit the website for further info.:check the "Requirements" section,
Publication 54 (2009), Tax Guide for U.S. Citizens and Resident Aliens Abroad
I think that your guidance is very interesting; I want to serach for it!!
psylin42, I am sorry to have given you inaccurate guidance. Please keep an eye on the discussions.

psylin42 · Sep 17, 2010, 06:57 AM

I looked at Form 1116 and 8833 and the instructions. What a terrible way to start the day. The instructions are scary. Please do not apologize. I know that you tried and that is what counts. I will keep up with the discussions.

psylin42 · Sep 17, 2010, 04:43 PM

I called the IRS. I have to post this as 2 comments or it will be too long. Does their explanation below make sense to you?

A resident alien is the same as a US citizen for US tax purposes. A SSN makes her a US citizen for tax purposes.

My DIL's SSN makes her a US citizen for tax purposes and therefore does not need 1116. Her foreign income was not taxed in the US so 1116 isn't needed.

For Form 8833 questions:
Check one or both of the following boxes as applicable (I don't understand these 2 questions):
1a) India
1b) Article 26
2) Title 26 Internal Revenue Treaty with India
3) N/A
4) Article 26, Provisions 1-5
5) US provisions take precedence; Wages were already taxed in India, if they are declared as income in the US then it is double taxation.

Does Form 8833 mean that she gets the Form 2555 credit?

Thanks to everyone for helping.

wnhough · Sep 18, 2010, 09:55 AM

QUOTE," A resident alien is the same as a US citizen for US tax purposes. A SSN makes her a US citizen for tax purposes."---Right! Absolutely. As said previously, your DIL became a US resident alien under the US tax code in Oct. 2009, when she married to your son, a US citizen.

"My DIL's SSN makes her a US citizen for tax purposes and therefore does not need 1116. "---As you know, the FEIE is available in lieu of the FTC, foreign tax credit; your DIL can't calim both FEIE and FTC at the same time. In general, a taxpayer that elects FEIE in one year may switch to FTC in any subsequesnt year. To qualify for the FEIE, your DIL , as a US resident alien, must be present in India for at least 330 days during a period of 12 consecutive months.

"Her foreign income was not taxed in the US so 1116 isn't needed."---Then no.Your DIL, as a US resident alien, uses US Tax form 1116 to claim her tax credit for income taxes paid to the Indian tax authority in India when her U.S. taxes are also paid on the same income that she earned in India. The tax form 1116 is not mandatory.She claims her FTC without filing form 1116 if she meets some requirements.

"Does Form 8833 mean that she gets the Form 2555 credit?"---No. Tax form 8833 is used When the benefits of a tax treaty are used to justify non payment of a tax or the non filing of a return.

psylin42 · Sep 18, 2010, 03:25 PM

My goodness, how I appreciate your help and your patience. Thank you.

MukatA · Sep 18, 2010, 11:36 PM

1. If your son does not file joint return, his spouse need not file tax return in U.S. as she does not have any U.S. income.
2. They can file joint return as residents. In that case both must report worldwide income.
3. She can file Form 2555 for foreign earned exclusion or form 1116 for foreign tax credit.
If she never visited U.S. before Oct 2010, she should meet bonafide residency test as well Physical presence test.

wnhough · Sep 19, 2010, 07:52 AM

Agreed~~

AtlantaTaxExpert · Sep 20, 2010, 01:05 PM

Actually, it IS possible to claim BOTH the Foreign Tax Credit and the Foreign Earned Income Exclusion if the foreign earned income exceeds the annual exemption amount (which I believe is about $87,500). You have to be careful to claim the foreign taxes ONLY on the income in excess of the exclusion amount, and the calculations are somewhat complex, but not impossible.

Also not that you son CAN file as Married Filing Separately, then claim his wife's dependency exemption on HIS return if she is not going to file her own MFS return.