Resident Alien Spouse residing abroad

I'm not sure exactly what the IRS may have said to you, but if it was as you stated it is incorrect. You do not elect to be treated as a nonresident alien. If she does not pass the US substantial presence test (certain # of days of physical presence in the US) she is a nonresident alien of the US. As you are married, you would have to file Married-Separate (assumes you are not eligible to file as Head of Household). If your spouse has no US source income, you could claim a spousal personal exemption for her on your Married Separate return as long as she applied for and has an ITIN (IRS Individual Taxpayer Identification Number). Another option is for you both to elect to treat her as a US resident alien (she will need that ITIN). You could then file a joint return but you would have to include your combined worldwide income on the return. You would complete Form 1116 to compute a foreign tax credit for the income taxes paid to Canada on her income that is also being taxed by the US.

You may want to prepare your return both ways to see which provides the lower overall taxation.

This is good, but let's not forget state/province income taxes. Let's consider the case of married filing jointly.

The form 1116 -- does it give a credit on the US federal tax return for taxes paid to Canada's federal government, or to Canada's federal

• provincial governments.

At an income of 70000 CAD, the federal marginal tax rate looks like

26%. The US marginal tax rate is likely 25%. So basically you won't owe and US tax on the federal return. By contrast if the CAD spouse made like $1M, the US marginal tax rate is 35% (maybe 44.5% in the future), whereas the CAD rate is 29%, so US tax would be owed on this income!

I believe the US states should give a credit for tax paid to Canadian provinces. But I don't think any do this. Am I right?

Suppose the US spouse lives in California. Then there might be 9.55% CA tax due on the 70000 CAD, with no credit for tax paid to say Ontario.

Which it means it might be better to just do the ceremony, but defer the actual marriage certificate till after the year she moves to the US. Living in sin, as Dick says :).

And as an aside, would the foreign earned income exclusion apply to the Canadian spouse? It seems to me like it would.

Foreign income taxes include income taxes paid to a foreign country and any of its political subdivisions. I translate that to mean any province or territory of Canada collecting an income tax. And, yes the foreign earned income exclusion is available to a resident alien who meets either the physical presence test or bona fide residence test.

Both. One year I was in a Quebec partnership so I had to pay both Canadian federal and Quebec provincial taxes. (Wow, was that a bad idea.) I've been working down the credit on form 1116 ever since.

I concur with the advice to try the taxes both ways. Some provinces have considerably higher rates than others, so it's possible that in a high tax province you wouldn't be able to credit all of the Canadian tax on 1116 and would have to roll some of it over to future years.

R's, John

No need to have an ITIN just yet. Just apply for one.

The procedure for the ITIN is to fill out the 1040 and then attach a Form W-7 ITIN application, and either the requested documents or an ITIN acceptance agent's certification, to the top of that

1040 and send the whole package to the address shown on the W-7 instructions.

The IRS should issue an ITIN, and use that ITIN to process the 1040.

Does this election require her to include her income each year from then on?

On 12/10/09 7:45 PM, Arthur Kamlet wrote: [snip]

No. Election is for that tax year.

New York does. See form IT-112-C "New York State Resident Credit for Taxes Paid to a Province of Canada"

How does this rolling over work? If the net CAD federal + province tax is 30% and the US federal tax is 20%, there was excess CAD tax to the tune of 10% of taxable income. Are you saying this gets carried over to future years?

Do the rules allow you take a federal form 1116 credit for taxes paid to Canadian federal + province, as well as a credit on this NY form for taxes paid to the CAD province? That would mean you get credit for the taxes paid to the CAD province, which doesn't seem quite right.

Looking at the form... there appears to be a netting that takes place in Part 2. You can only use that part of the provincial tax that was not used to claim an FTC,