Most G-4 visa holders working full-time for international organizations are treated as nonresidents for U.S. income tax purposes (please click here for a detailed discussion of G-4 tax residency issues). If a nonresident is married to a U.S. citizen or other U.S. income tax resident, there may be an opportunity for significant tax savings by filing a joint income tax return.
In order to file a joint income tax return, both spouses must be U.S. citizens or U.S. tax residents. The 6013(g) election has the effect of treating the nonresident spouse as a U.S. tax resident for the year in which the election is made and subsequent years, thereby allowing the filing of a joint income tax return. Two nonresident spouses may not make the election to be treated as residents and therefore must file separate U.S. tax returns.
Note that without the filing of a 6013(g) election, a joint income tax return filed by a G-4 visa nonresident and his/her U.S. citizen or resident spouse is invalid! An IRS audit would likely result in back taxes, penalties and interest.
6013(g) Election Potential Advantages
Once the G-4 spouse becomes a U.S. tax resident under the election, his/her worldwide income is subject to U.S. income taxation; with the important exception that the G-4 spouse’s wages earned from an international organization will continue to be tax exempt!
It is most often advantageous from an income tax perspective for a U.S. working spouse to file jointly with a G-4 nonresident, especially if the only income generated by the G-4 visa holder is wages from an international organization. The reason for this is twofold: (1) If separate tax returns are filed, the U.S. citizen/resident must file a Form 1040 using the “married filing separate” tax status, and tax brackets under this status usually cause a higher tax liability than filing under the “married filing joint” status; (2) if a joint tax return is filed, the G-4 spouse is allowed to be a “personal exemption” on the joint tax return even though the individual may not have any taxable income reported on the return. In 2014, personal exemptions reduce taxable income by $3,950.
6013(g) Election Potential Disadvantages
A potential disadvantage to the 6013(g) election is that it is binding and can only be made once in a lifetime. Also, once the election is made, the G-4 spouse becomes a tax resident of the United States and is taxable on a worldwide basis rather than just on certain U.S. sources of income. Therefore, if the G-4 spouse has substantial amounts of foreign source income (such as foreign rental properties or foreign investments) then a calculation should be performed to determine if the election would be produce the desired tax savings.
Becoming a U.S. tax resident may be administratively burdensome since it may require the filing by the G-4 visa holder of governmental informational forms such as IRS Forms 8938 (Statement of Specified Foreign Financial Assets), Forms 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company), Forms 3520 (Foreign Trust Report) and others.
Revocation / Termination of the 6013(g) Election
The 6013(g) election is valid until it is revoked, the spouses get divorced, or one of the spouses dies. Once revoked, the spouses cannot file a joint return again until they are both income tax residents in their own right.
The 6013(g) election is not widely publicized by the IRS and can be a trap for the unwary international organization employee who files joint income tax returns with their spouse. However, the election and its timely revocation can be a useful device in reducing the overall tax liabilities of G-4 visa holders and their spouses.
As stated in the article, in order for a valid joint income tax return to be filed by a U.S. citizen or U.S. tax resident and a nonresident (G-4 visa holder in many situations), an election must be filed pursuant to Internal Revenue Code Section 6013(g). Treasury regulation 1.6013-6(a)(4)(ii) is the regulation that provides the time and manner of making the election; we have included a link here. If you would like The Wolf Group to advise you on whether to make the 6013(g) election or if you would like assistance with the preparation of your U.S. income tax return, please contact our New Client Representative, Pooja Kaur at (703) 502-9500.This articles in this newsletter is not intended as legal or tax advice, and cannot be relied upon for any purpose without the services of a qualified tax professional.