The Local National Spouse

ORLANDO

By Orlando Gotay, Tax Attorney

Some expats literally integrate into Mexico by marrying a local national. Many are mostly eager to get to know in-laws and new relatives; however, not too many pay attention to the tax consequences of marrying a non-US person.

First, consider the likely change in your filing status. Filing status determines your tax rate, personal exemption, standard deduction, and other matters that determine your tax. This is a huge thing. People’s circumstances are always different. There is no way to tell if one status is “better” than another. If you qualify for more than one, pick the one giving the best result.

Do you bring the new spouse into the US tax system? A “nonresident alien” normally has no US tax obligations or requirements; bringing them into the US tax system is optional. If that is done, you can file jointly and perhaps find it advantageous. Remember, both spouse’s worldwide income must be reported and tax paid to the US. Consider your new spouse’s future earnings. If your local national spouse has foreign retirement accounts (like AFORE), bringing them into the US tax system can become quite the headache, as those investments are not, repeat not, suited to US persons. The local spouse must get a tax ID number, a small feat by itself if done from outside the US.

Married filing separately is another option. The local spouse’s income does not come into the computation, and no ID number is needed. Many, however, find MFS oppressive and find they pay far more under this status. Some tax credits are not allowed for MFS filers. However, there may be an alternative.

Head of Household may be available if married to a “nonresident alien.” The spouse does not help qualify as HOH; someone else must be the “qualifying person.” Rules are complex and hinge mostly on who lives with you and who pays for more than half the cost of keeping your home. “New” relatives acquired by your marriage can qualify you as HOH and may get you extra exemptions (besides your spouse’s). I know you liked your mother (or father)-in-law, but do you like them enough to have them live more than half the year with you? How about your brother-in-law or daughter-in-law? They may make a difference in whether you actually pay taxes on your social security benefit after all.

As you can see, marrying “foreign” can have meaningful tax consequences to you. How you structure your household under these rules can bring joy or despair come tax time. It is all up to you. IRS Pub. 501 has all the details.

 

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the tax matters of U.S. expats in Mexico. He can be reached at tax@orlandogotay.com or Facebook: GotayTaxLawyer.

 

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