Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.
05-12-2017 03:26 AM
I am a US citizen who lives and works in Canada. My wife, also a US citizen lives and works in the US. She is low income, works as a cleaning lady, dog walker etc. My income is substantially more. We've been living apart for seven years. Here's my question: Is there any way to keep my income from driving up her tax rate and also disqualifying her for certain government benefits? Her tax bracket is much higher than it should be due to my income. She is also not eligible for lower healthcare premiums and some government assistance. Thank you for any information and advice. Have a good day.
05-12-2017 03:03 PM
Welcome to the H&R Block community.
There is at least one way that you can get around the high tax rate. If you lived and worked in Canada for any period of 12 consecutive months that ended in 2016 then you can exclude up to $101,500 of your income from taxation in the U.S. by filling out Form 2555 (Foreign Income Exclusion). You may also be able to take a housing allowance. Your tax rate is based on your taxable income, not your total income. So, if you can exclude most or all of your income then your wife's tax rate will be based for the most part on her income alone even if you're filing jointly.
Your income actually affects your eligibility for tax benefits more than your tax rate does.
For purposes of the premium tax credit which helps cover the cost of health insurance all income is taken into consideration including that which is excluded using Form 2555. For the premium tax credit there unfortunately is no way around both of you being ineligible if you have the level of income that I'm thinking you probably do. Your wife can still sign-up for marketplace insurance, she just will not be able to get the premium tax credit to help pay for it.
Also note that the other option is to file using the married & filing separately status. However, when you file separately most tax benefits are either severely limited or disallowed in addition to other special rules for the MFS status, and this includes the premium tax credit which is one of the disallowed benefits. If you have dependents and your wife cares for and provides for them then because you've been separated for several years she may meet the head of household exception to the MFS status though in which case she could file as head of household, claim the kids, and be eligible for the premium tax credit and other benefits. If you lived together at any time during the last six months of the year she will not be eligible for the HOH exception.
When it comes time to complete your next tax return you may wish to meet with a tax professional who can look over your tax situation with you and help you figure out what the best option is.
If you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)