Foreign-Spouse Tax Rules: MFJ, MFS, and HOH Essentials for U.S. Filers

(INDIA) U.S. tax filing season is bringing renewed attention to how Indian-American families handle returns when a spouse lives abroad and isn’t a U.S. tax resident. At the center is a choice many couples face: whether to file as Married Filing Separately or make the election to file as Married Filing Jointly by treating the foreign spouse as a U.S. resident for tax purposes.

The decision carries long-term consequences for households that split time or income between India and the United States. It influences savings plans, home purchases, and even steps families take in their immigration journeys. For couples where one spouse is a U.S. citizen or tax resident and the other is a nonresident alien, the rules are clear but weighty: filing jointly can bring a broader set of U.S. tax obligations, while filing separately can limit access to credits and offer a smaller standard deduction.

Confirming the spouse’s tax status

Advisers working with cross-border couples say the first step is to confirm the spouse’s status. If the spouse is a nonresident alien, the default U.S. filing status for the citizen or resident spouse is Married Filing Separately unless they qualify as Head of Household.

• Under this default:
  • Only the U.S. filer’s income is reported on the return.
  • The foreign spouse does not need to file a U.S. return at all.

However, couples may elect to treat the nonresident spouse as a U.S. resident for the full year and file as Married Filing Jointly. That election can:

• Open the door to a higher standard deduction and several credits.
• Bring the foreign spouse’s worldwide income into the U.S. tax net for that year.
• Trigger extra information-reporting obligations.

A simple example: Priya and Raj

The example tax practitioners often use is increasingly common:

• Priya: U.S. citizen, living in the United States.
• Raj: Indian citizen, living in India, with no U.S. income.

If Priya files separately:

• She reports only her own income.
• Raj’s earnings remain entirely outside the U.S. tax system.

If they elect to file jointly:

• Both incomes must be included on the joint return.
• The joint route may lower combined tax and unlock credits that Married Filing Separately filers can’t claim.
• But it can raise U.S. taxes if Raj has meaningful income from India.

Source material (VisaVerge.com) notes that couples increasingly run year-by-year comparisons before choosing a status, especially if the spouse abroad expects income swings or might move to the U.S. during the year.

How to make the joint election and practical steps

The technical step that enables a joint return is a formal election made in writing:

1. Attach a signed statement to the tax return declaring the choice to treat the nonresident spouse as a U.S. resident for the entire tax year.
2. The foreign spouse needs a taxpayer number:
   • An SSN if eligible, or
   • An ITIN obtained by filing Form W-7.

• The IRS allows the Form W-7 application to be submitted by mail with the tax return, which helps first-time filers complete the election and return in one package.
• The IRS provides official instructions for Form W-7 on its website; couples often review those steps in advance to avoid delays that could hold up the joint filing.

Important: The election is for the entire tax year and must be made in writing and included with the return.

Financial trade-offs and reporting consequences

Couples should model two paths: (A) separate return reporting only the U.S. spouse’s income, and (B) joint return with combined worldwide income.

• Benefits of Married Filing Jointly:
  • Higher standard deduction: $29,200 for the 2024 tax year (source material).
  • Access to credits that are reduced or unavailable when filing separately.
• Drawbacks of Married Filing Jointly:
  • The foreign spouse’s worldwide income (salary, business income, interest, rent, etc.) must be reported to the U.S. for that year.
  • Potentially higher U.S. tax if the foreign spouse has substantial foreign income.

• Consequences for foreign assets and accounts:
  • Joint filing may bring the foreign spouse under U.S. information-reporting rules.
  • Possible filings include:
  • FBAR (foreign bank accounts) if thresholds are met.
  • Form 8938 for certain foreign financial assets.

The IRS outlines the election’s broader framework in Publication 519, U.S. Tax Guide for Aliens, which explains the resident election and related reporting in plain terms, including examples.

Timing, residency tests, and state issues

For families moving between countries, timing matters as much as the math.

• Couples expecting the foreign spouse to relocate during the year may weigh electing joint status now versus waiting until the spouse becomes a U.S. tax resident under standard residency tests.
• Keep proof of the spouse’s foreign residence and income—these records support whichever status the couple claims and can help if a state tax agency questions residency or domicile ties.

State rules can diverge from federal norms:

• Some states look at domicile (a person’s true, fixed home), which can complicate state tax treatment even if the federal election is not made.

Estate and gift tax considerations

Estate and gift taxes further complicate planning for Indian-American couples with assets in both countries:

• A non-U.S. citizen spouse receives fewer unlimited marital deductions under U.S. estate and gift tax rules than a citizen spouse would.
• Families often consider:
  • Purchasing homes,
  • Making large gifts,
  • Planning inheritances,
    in light of what the tax system will allow.
• Advisers commonly review estate and gift planning alongside the filing status choice, especially when large transfers or substantial foreign assets are involved.

Practical guidance and documentation checklist

The rules extend to documentation, and missing a step can undo a couple’s plan. Key items to prepare:

• Signed election statement attached to the return.
• Taxpayer number for the foreign spouse (SSN or ITIN).
  • If an ITIN is needed: completed Form W-7 and supporting identification documents.
  • Form W-7 can be submitted with the tax return by mail.
• Records showing:
  • Foreign residency,
  • Foreign income,
  • Basis for the claimed status (e.g., move dates, visa paperwork).

Official IRS pages to review:

• Form W-7 instructions (available from the IRS site) explain who needs an ITIN, what documents to attach, and how to send the application.
• IRS Publication 519 explains the resident election and reporting: IRS Publication 519 — U.S. Tax Guide for Aliens.

How families use the results

Indian households with ties to the U.S. say the choice ripples through daily life:

• A joint filing that produces a larger refund might free cash for a home purchase in Bengaluru or a school deposit in New Jersey.
• A separate filing that avoids taxing the spouse’s Indian business income might be preferable when the family plans to reinvest profits locally.

The consistent practical advice:

• Run the numbers for both paths before deciding.
• Watch residency timing and how it affects federal and state treatment.
• Keep careful records that show residence, income, and the basis for the status claimed.
• Revisit the decision annually as life changes across India and the United States.

Final takeaway

The decision to file jointly or separately is both technical and personal. For years when the foreign spouse has little or no income, the joint election can make sense to access a higher standard deduction and credits. When the spouse’s foreign earnings are high, Married Filing Separately may keep the U.S. tax bill lower. Because the election applies to the full year, couples can reassess annually and should coordinate tax filing choices with estate, gift, and immigration planning.

For official resources and step-by-step instructions, consult IRS Publication 519 and the Form W-7 instructions at the IRS site: IRS Publication 519 — U.S. Tax Guide for Aliens.