Taken from article originally published 7th December 2023

For many US citizen clients whom are filing for the first time after getting married, I’m commonly asked how their US tax status will affect their new spouse.

The implications can vary, but in most cases the impact is minimal when US tax planning has been sought.

Marrying a US citizen spouse

As you may imagine, if a US citizen in New Zealand marries another US citizen, then the implications are almost inconsequential.

The main change is the switch from Single filing status, to either Married Filing Jointly, Separately, or potentially head of household.

However, as both persons were already US taxpayers prior to marriage, their assets/income were already exposed to the US tax system and thus no significant change.

Marrying a non-US citizen spouse

When marrying a non-US citizen spouse, the implications can be a little more complicated, but manageable.

Here are some of the most common questions I’m asked:

Will my Kiwi spouse’ income be taxed by the IRS?

Generally speaking, no. Whilst their name will need to be disclosed on the US tax return of the US citizen spouse, none of their income would be included.

As a non-US citizen, they will have no tax obligation to the IRS.

But they’ll need to give their name, what about any other information?

The main concerns we encounter for a non-US citizen spouse, is usually regarding privacy.

As is widely known, US citizens are required to file Form FinCEN 114 each year, otherwise known as an FBAR (foreign bank account reporting).

Going forward, any joint accounts set up, will need to be reported on the FBAR of the US citizen spouse. Whilst there are no tax implications of this form, it does in essence mean that a bank account owned by a non-US citizen would be reported annually to the IRS, due to it also having a US citizen owner.

What about jointly earned income, such as interest on a joint bank account? Will their share be taxed?

No, this is quite straight forward in that the interest income would be split 50/50 for tax purposes.

For example, a US citizen and non-US citizen married couple earn $100 in bank interest and pay $10 in tax, then on the US citizen’s return we would report $50 of interest income and $5 in tax paid.

My new Kiwi spouse has a family trust, will this create any issues?

Possibly yes, and you should seek US tax advice as soon as possible to prevent any financial interaction with the trust which could it expose it to the US tax system

My new Kiwi spouse has significant financial assets, what should we do?

Again, this is where things can get a little complicated. Without proper management, it is possible that the non-US citizen spouse’s assets could be treated as owned by the US citizen spouse. Tax advice should be sought here, in order to manage these assets in a tax efficient manner.

Will their share of the family home be taxed by the IRS upon sale?

No, not necessarily, referring back to the question regarding bank interest.

Anything else I should know?

Whilst generally speaking, marrying a Kiwi spouse will have little to no impact on your US taxes, advice should be sought to ensure that all bases are being covered and no actions are taken which inadvertently result in a non-US citizen spouse’s assets falling into the US tax net.

At The US Tax Team New Zealand, we assist with tax advice and consulting. If any of the issues above are of concern to you, contact us today info@usatax.nz or 09-232-3445