I am a U.S. Citizen in the final stages of getting my spouse visa to return to Japan (just got my certificate of elibigility). My Japanese wife is a US green card holder (past 18 years) and we've been filing married jointly since we got married in Japan, prior to her getting a green card and us moving to the U.S. There's a lot of information out there about the exit tax for US citizens and green card holders when they leave the U.S. but I haven't had much luck finding out if that exit tax applies to our situation.
As I understand it, the exit tax is meant to take sure you've squared away your last tax bill. In our case we'll be moving to Japan in 2022 but since you don't file taxes for 2022 until 2023, the IRS wants to make sure they get any taxes due to them for the 2022 tax year. In our case though, I am a U.S. citizen and have to continue to file/pay US taxes no matter where I live as that is just the price of being a US citizen. Our intention is continue filing married jointly in 2023 and beyond.
Assuming we continue to file our US taxes as joint married, I feel that it means my wife has not skipped out on any of her tax obligations. Therefore my assumption is that she would not be subject to any exit tax. Does anyone have experience in a similar scenario?
US Exit tax if continue to file married jointly
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ClearAsMud
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Re: US Exit tax if continue to file married jointly
It isn't clear from your post whether you are referring to the exit tax or to the IRS requirement for aliens to obtain a sailing permit before leaving the US. You should first check out the following IRS page:
https://www.irs.gov/individuals/interna ... ing-permit
Technically, all departing aliens (with the exceptions noted on the cited page) are required to file either a Form 2063 or a Form 1040-C with their local IRS office to ensure that they leave behind no outstanding or potential tax obligations. The thing is, this requirement is little known and never enforced (no airline is going to ask you to show your sailing permit), so very, very few aliens actually comply. But if you really want to follow the letter of the law, your wife should make an appointment to file the correct form and get a sailing permit. Most don't bother, but if you ask the IRS, they can only tell you to get one.
As for the exit tax, that is imposed only on those who renounce/relinquish their citizenship or (in the case of long-term residents) surrender their green cards AND are considered "covered expatriates." It is a topic too complicated to discuss in a forum post, but your spouse will first have to make a decision about whether and/or when to officially surrender her green card (this is typically done after leaving the country and requires submitting a Form I-407). Assuming that she surrenders it, since she has been a lawful permanent resident in at least 8 taxable years during the previous 15 taxable years, she would then file a Form 8854 with a final nonresident-alien tax return (likely a dual-status return with a Declaration of Termination of Residency) to exit the American tax system.
It is Form 8854 that determines whether or not someone is a covered expatriate and therefore liable for the exit tax. You become a covered expatriate in one of three ways:
Once your spouse has left the system, you yourself might file Married, Filing Separately tax returns, which would exclude any of your spouse's assets or income from future American taxation or reporting requirements (e.g., FBAR). Or you could, if you wished, choose to treat your now nonresident-alien spouse as a tax resident and file jointly, which would probably lower your nominal tax obligations but would require you to continue to treat your spouse as a US tax resident (you would have to check on the extent/frequency with which spouses of citizens can change their filing status -- I seem to remember some limitaitons here, but can't be sure). You will definitely want to decide for yourself the best course of action to take in your specific case. Basically, unless your spouse files an I-407, she remains a US tax resident regardless of her immigration status. The 8854 is additionally required for long-term residents to officially exit the tax system (those who have been lawful permanent residents for fewer than 8 of the previous 15 years don't need to worry about it).
https://www.irs.gov/individuals/interna ... ing-permit
Technically, all departing aliens (with the exceptions noted on the cited page) are required to file either a Form 2063 or a Form 1040-C with their local IRS office to ensure that they leave behind no outstanding or potential tax obligations. The thing is, this requirement is little known and never enforced (no airline is going to ask you to show your sailing permit), so very, very few aliens actually comply. But if you really want to follow the letter of the law, your wife should make an appointment to file the correct form and get a sailing permit. Most don't bother, but if you ask the IRS, they can only tell you to get one.
As for the exit tax, that is imposed only on those who renounce/relinquish their citizenship or (in the case of long-term residents) surrender their green cards AND are considered "covered expatriates." It is a topic too complicated to discuss in a forum post, but your spouse will first have to make a decision about whether and/or when to officially surrender her green card (this is typically done after leaving the country and requires submitting a Form I-407). Assuming that she surrenders it, since she has been a lawful permanent resident in at least 8 taxable years during the previous 15 taxable years, she would then file a Form 8854 with a final nonresident-alien tax return (likely a dual-status return with a Declaration of Termination of Residency) to exit the American tax system.
It is Form 8854 that determines whether or not someone is a covered expatriate and therefore liable for the exit tax. You become a covered expatriate in one of three ways:
- You've had an average annual income-tax liability of $171,000 over the five years preceding expatriation (2020 figure; note that this is income tax and not income).
- You have a net worth (including unrealized assets) in excess of $2 million at the time of expatriation.
- You fail to certify on IRS Form 8854 that you have complied with all US tax obligations for the five years preceding expatriation.
Once your spouse has left the system, you yourself might file Married, Filing Separately tax returns, which would exclude any of your spouse's assets or income from future American taxation or reporting requirements (e.g., FBAR). Or you could, if you wished, choose to treat your now nonresident-alien spouse as a tax resident and file jointly, which would probably lower your nominal tax obligations but would require you to continue to treat your spouse as a US tax resident (you would have to check on the extent/frequency with which spouses of citizens can change their filing status -- I seem to remember some limitaitons here, but can't be sure). You will definitely want to decide for yourself the best course of action to take in your specific case. Basically, unless your spouse files an I-407, she remains a US tax resident regardless of her immigration status. The 8854 is additionally required for long-term residents to officially exit the tax system (those who have been lawful permanent residents for fewer than 8 of the previous 15 years don't need to worry about it).
Re: US Exit tax if continue to file married jointly
Wow. Thanks for such a detailed response. I had stumbled across the sailing permit in some IRS publication but didn't find much about it elsewhere. I suspect as you mention, it's rarely filed. My post was mostly directed to the exit tax but I appreciate you going the extra mile with info on the sailing permit. The information about immigration status vs tax status was helpful, too. As you said I have some studying to do. This was helpful. Thanks again for taking time to give such a detailed response.