[Arun U Rajamma]

Hi,

My wife (an Indian citizen) works for an American company in India. She is coming to the US on L1 Visa (Blanket) in Feb 07. Her salary structure for this US assignment is as follows.
-She will continue to get her India salary in India (with tax for that being paid in India)
-She will be paid $2000 in the US every month as "cost of living allowance".
However her company has asked her to take care of the US Tax filing all by herself. Kindly advise how to go about doing it. Also is her allowance in the US taxable ?

Thanks.

[AtlantaTaxExpert]

How LONG is she going to be in the U.S.?

[Arun U Rajamma]

How LONG is she going to be in the U.S.??

She will be here for 1 year

[AtlantaTaxExpert]

She will have to file a U.S. tax return claiming BOTH her Indian salary and, In my opinion, the "cost of living allowance".

She can claim the Foreign Tax Credit (Form 1116) for the taxes she pays in India.

The length of her stay makes claiming her expenses during her stay in the U.S. problematical, as the IRS usually uses one year as the cutoff between a temporary versus a permanent job location change.

[Arun U Rajamma]

Thank you for the info.

However I have the following queries too.
- How the Foreign Tax Credit works. Does it get refunded when the taxes are filed ? How is the refund amount calculated from the tax paid in India.
- The US allowance is per diem allowance. Will the tax on the per diem be paid by the employer or the employee or is it tax exempt ? I understand that after 11 months she has to be moved to the US payroll completely.
- How does married status affect our US tax since both of us will be working in the US ?

Thanks,

[AtlantaTaxExpert]

Last to first:

1) You have the option of filing jointly.

2) The per diem is taxed to the employee.

3) The Foreign Tax Credit is a complex formula that is used to offset taxes paid on foreign-based income. The calculation is done on Form 1116.

[Arun U Rajamma]

Thank you

Is there any tax relief when the status is "married" even though both the spouses are working ? Will married and working spouse status reflect in the federal tax "points", here I am referring to the W4 form.

Thanks,

[AtlantaTaxExpert]

The W-4 only instructs the employer on which formula to use when withholding taxes from your salary.

Filing jointly generally results in less tax being owed, but NOT always. The only way to be sure is to do it both ways and compare the results.

[Arun U Rajamma]

Thank you for all the info. Do you have a contact mail/# where I could reach you just in case I have questions on specific things.

[AtlantaTaxExpert]

You can contact me at [email protected].

[Arun U Rajamma]

Thanks for the info. I have one more question. Its regarding my tax filing for 2006. I am in US on L1 and last year my wife was not here. Also she doesn't have an SSN. In that case while filing tax using a software I found that if I file with the status "Married but filing separately" I have to give my wife's SSN. So should I be filing with the "Single" status for 2006

[AtlantaTaxExpert]

You are married; you cannot file SINGLE.

Put your wife's name and state in the SSN area "No SSN; wife foreign national".

You will have to MAIL the return in, but it will be accepted.

[Arun U Rajamma]

I was using the free edition of TurboTax since I don't have any itemized things to file. At the end its gave an error saying that I have to enter my wife's SSN. So instead of e-filing, if I print it out ( I am not sure if I can ) and write the comment about my wife's SSN, and mail it, will that be okay ? Or should I use any IRS forms and fill them myself (turbotax automatically calculated my returns. If I am doing it all on my own, will it be easy ?). Kindly advise.

Thanks,

[AtlantaTaxExpert]

Printing out the TaxAct form and manually printing in the statement will be just fine.