Is my wife's nenkin considered US worldwide income

[dcon]

I am a US citizen living in Japan and my wife is Japanese. I have always filed a joint return for US taxes - that is what the tax preparer's recommended many years ago. My wife started receiving a small amount of money via Nenkin last year. I am trying to figure out whether I need to declare that on our US return.

The IRS site says under the topic "Nonresident Alien Spouse":

"You and your spouse are treated, for federal income tax purposes, as U.S residents for all tax years that the choice is in effect. Generally, neither you nor your spouse can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect. However, the exception to the saving clause of a tax treaty might allow a tax treaty benefit on certain specified income."

I tried to figure out if that is called out in the US-Japan Tax Treaty, but I struggle with the legal language that they use. Article 1, Paragraphs 4 and 5 imply that nenkin received by US citizens resident in Japan is taxable. So when I start receiving nenkin, I would need to declare it. I don't see anything in the tax treaty Article 4 (Residence) that says my wife would be treated as a US citizen. Does anyone have experience with this that they can share?


"4. (a) Except to the extent provided in paragraph 5, this Convention shall not affect the taxation by a Contracting State of its residents (as determined under Article 4) and, in the case of the United States, its citizens.

5. The provisions of paragraph 4 shall not affect the benefits conferred by a Contracting State under paragraphs 2 and 3 of Article 9, paragraph 3 of Article 17, and Articles 18, 19, 20, 23, 24, 25 and 28, but in the case of benefits conferred by the United States under Articles 18, 19 and 20 only if the individuals claiming the benefits are neither citizens of, nor have been lawfully admitted for permanent residence in, the United States.


Thanks,
Dan

[dcon]

I did some more searching and found my question in the FAQs about International Tax Matters. I guess it is not necessary to try to understand the Tax Treaty. Since we are filing jointly, my wife's Nenkin must be included in the worldwide income.

For reference, here is the text that I found:

"In general, if you are a U.S. citizen or resident alien married to a nonresident alien, you are considered “Married Filing Separately” unless you qualify for a different filing status. If you pay more than half the cost of keeping up a home for yourself and a qualifying child or other relative, you may qualify for the head of household filing status.

If you are a U.S. citizen or resident alien married to a nonresident alien, you and your spouse can choose to have your spouse treated as a U.S. resident for all U.S. federal income tax purposes. This allows you and your spouse to file a joint return, but also subjects your nonresident alien spouse’s worldwide income to U.S. income tax."


See "Filing Status and Dependents", Question 1 on this page:

https://www.irs.gov/individuals/interna ... ax-matters