US non-residents (for tax purposes) must make a special election in order to file joint tax returns with their US tax resident spouses. Changes to individual income tax forms for 2024 indicate that the IRS may be taking a closer look at the returns of such couples, to ensure that certain items are properly reported.

What Changed?

The IRS has updated the 2024 US Individual Income Tax Return (Form 1040) to include additional information related to individuals filing under an Internal Revenue Code (IRC) §6013(g) or §6013(h) election. The update can be found on page 1 of Form 1040 in the “Filing Status” section. Here is a snip:

Form 1040

Form 1040

The additional line indicates that if a non-resident alien is filing “married filing jointly” with a US tax resident spouse under either IRC §6013(g) or §6013(h), then the box must be checked, and the name of that person must be provided.

Background

IRC §6013(g) is a one time, once-in-a-lifetime election. It occurs when a non-resident is married to a US tax resident, i.e., an individual satisfying the substantial presence test or the green card test or a US citizen.

The general rule is that the married couple cannot file a joint US Individual Income Tax Return (Form 1040) or use the married filing jointly status. Rather, the US tax resident must file “married filing separately” on the Form 1040, and if the non-resident alien has a US tax return filing requirement (such as when they have effectively connected income or non-effectively connected income with improper withholding tax), then the nonresident would file “married filing separately” on US Non-Resident Income Tax Return (Form 1040NR).

The §6013(g) election enables the non-resident to file “married filing jointly” with their US tax resident spouse on Form 1040. Further, the election treats the non-resident spouse as US tax resident for purposes of Internal Revenue Code Chapter 1, Chapter 24, and Sections 6012, 6013, 6072, and 6091 for the entire taxable year and for all subsequent tax years that the election is in place.

The general advantages of making the election include:

  • Better tax rates—The filing status of married filing jointly has better tax brackets than married filing separately.
  • Greater access to deductions—The married filing jointly standard deduction is double the married filing separately standard deduction, and filing jointly can also provide greater access to certain other deductions and credits.

The general downside is that both spouses would now be subject to US taxation on their worldwide income and mandatory International Informational Reporting of their worldwide foreign financial assets (whereas without the election, only the resident spouse would be subject to these requirements, and the non-resident would only file to report their US-sourced income).

Examples of mandatory International Information Reporting that may apply include, but are not limited to, IRS Forms 8938, 8621, 5471, 926, 8992, 3520, 3520-A, 8858.

Example 1

A is a US citizen and B is a non-resident alien and citizen of Foreign Country 1 or FC1. FC1 has a tax treaty with the US. A and B are married on January 1, 2024. B continues to remain a US non-resident with no ties to the US. B has a brokerage account in FC1. The brokerage account has 15 non-US mutual funds that are classified as “PFICs” for US tax purposes. If A and B were to make a §6013(g) election for tax year 2024, then the PFICs that B holds are required to be reported and taxed on the 2024 tax return. The reporting and taxation of these assets can be both very burdensome and costly (both from a tax and tax preparation standpoint).

Potential Advice: B should dispose of the PFIC holdings in FC1 in calendar year 2024. A and B should wait until calendar year 2025 to make the §6013(g) election.

IRC §6013(g) Issues

A non-resident spouse who is making a §6013(g) election must consider several tax issues. First, the election precludes the non-resident spouse from claiming any benefits under an income tax treaty. Therefore, the non-resident spouse cannot file IRS Form 8833 and take an income tax treaty position.

Example 2

The facts are the same as Example 1. However, assume that B, the non-resident spouse, has a pension located in FC1 that is classified as a §402(b)(4) pension under US tax law.

The income tax treaty between the US and FC1 generally allows the deferral of taxation of both the employer and the employee contributions to the pension, as well as tax deferral on the earnings and accretions in the plan (similar to a US 401(k) plan).

B disposes of the PFIC holdings in tax year 2024. A and B make an §6013(g) election in 2025. In 2025, B continues to work in FC1. B’s employer contributes US$10,000 to the foreign pension plan. B also contributes US$10,000 from B’s gross salary to the foreign pension plan. The foreign pension plan has $10,000 of earnings and accretions for 2025. B’s gross salary is $180,000.

Since B has made a §6013(g) election, B cannot use the US-FC1 income tax treaty. Therefore, B’s taxable wages on the US Individual Income Tax Return are $190,000 ($180,000 base + $10,000 of employer contributions; B cannot deduct the $10,000 of employee contributions from the base). B must also include $10,000 as other income subject to ordinary income tax, i.e., taxable earnings and accretions, as B is a highly compensated individual under IRC §414(q).

Second, the non-resident spouse is not considered a resident for purposes of Title 31, The Bank Secrecy Act. This means that non-resident spouse is not required to file FinCEN Form 114 (FBAR). This is notated in both the preamble to the FBAR regulations and the Internal Revenue Manual (IRM) 4.26.16.3.1.2. Please note that, as indicated previously, the non-resident spouse may be required to file other IRS International Informational Reports (such as IRS Form 8938).

Third, a non-resident spouse is still subject to “FIRPTA” withholding tax for the sale of US real property. It should be noted that the Form 1040 still does not have an entry line for FIRPTA withholding (unlike Form 1040NR, which does). This can make the exercise of claiming FIRPTA withholding tax refunds on a Form 1040 filing very burdensome and tedious.

Fourth, a non-resident alien is not treated as a tax resident for purposes of certain US taxes on income, such as the US self-employment tax (see Schedule SE) and the Net Investment Income Tax (NIIT). For example, the top of IRS Form 8960 (used to calculate the NIIT) includes a box to make a separate §6013(g) election for NIIT purposes. Here is a snip:

Form 8960

Form 8960

Without making this second IRC §6013(g) election, the default treatment is as follows:

  • The non-resident spouse is not subject to the NIIT, and so this spouse’s “net investment income” must be properly coded to the non-resident spouse so that the tax is not applied.
  • The US tax resident is deemed to be filing “married filing separately” for purposes of the Form 8960 calculation, so the lower “married filing separately” amount of $125,000 of net investment income is exempt from the NIIT instead of the higher “married filing jointly” amount of $250,000.

If the couple elects to make the second IRC §6013(g) election, then both spouses’ net investment income is subject to the NIIT; however, the “married filing jointly” threshold now applies, so the NIIT only applies to net investment income over $250,000.

Recommendation

Careful consideration should be given to all of the various tie-in items when making §6013(g) election, especially for the NIIT. Given that the IRS has changed the filing status section of Form 1040 for 2024 to ask about these cases, it appears the IRS is tightening the review process to make sure that all taxes and filing requirements are properly done for non-resident spouses under IRC §6013(g) or §6013(h) elections.

The Wolf Group maintains that married couples that have these facts and circumstances should seek tax consulting advice to understand all the benefits, drawbacks, and tax compliance issues before making the election.

The Wolf Group, PC has been providing tax services to non-residents, as well as tax residents with worldwide income and assets, since 1983. We assist various visa holders in determining their US tax return filing requirements, evaluating their filing options and elections, preparing tax returns and informational disclosures, and resolving tax audits with the IRS.