U.S. EXPAT TAX GUIDE – CHILE
Do US citizens in Chile need to report their spouse’s income?
No, US citizens living in Chile do not need to report their Chilean spouse’s income unless the spouse chooses to be treated as a US tax resident. This decision can affect your tax filing status and overall tax situation.
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When is it required to report a spouse’s income?
The IRS only requires you to include your non-US spouse’s income if they elect to be treated as a US tax resident. If your spouse is working in Chile and does not make this election, their income remains separate and is not included in your US tax return.
What are the filing thresholds for married individuals?
If you are married and filing separately, the filing threshold is extremely low. US citizens in this situation must file a tax return if their worldwide income exceeds US$5 for the entire year. This applies even if your spouse is not a US citizen or tax resident.
Example:
If you earn US$10 in interest from a US bank account, you are required to file a US tax return, even if you have no other income and your spouse is the primary earner in the household.
Can you claim the standard deduction?
Yes, even if your income is minimal, you can still claim the standard deduction. For 2024, the standard deduction for married individuals filing separately is US$14,600. This deduction helps reduce your taxable income.
Example:
If you earned US$50 in interest income, you would need to file a return. However, after applying the US$14,600 standard deduction, your taxable income would be US$0, and you would not owe any US taxes.
When does it make sense to file jointly?
Your spouse can elect to be treated as a US tax resident, which allows you to file a joint tax return. Filing jointly provides a higher standard deduction of US$29,200 in 2024, potentially reducing your taxable income even further. However, this option also requires reporting your spouse’s worldwide income on the joint return.
Benefits of filing jointly:
- A higher standard deduction
- Eligibility for certain tax credits, such as the Child Tax Credit (CTC)
When joint filing might be beneficial:
If your spouse’s income is relatively low or heavily taxed in Chile, filing jointly could result in overall tax savings. For example, claiming the CTC could offset the additional income reported on the joint return.
What is the cost of obtaining an ITIN for a non-US spouse?
To file jointly, your non-US spouse will need an Individual Taxpayer Identification Number (ITIN). An ITIN costs about US$300 and is valid for three years. The potential tax savings, such as from the CTC, can often outweigh this cost.
Example:
If you have two children, the CTC could provide up to US$4,000 in credits, far exceeding the cost of obtaining an ITIN for your spouse.
What about filing as Head of Household?
If you meet certain criteria, you may qualify to file as Head of Household (HOH) instead of married filing separately. To qualify, you must have a dependent, such as a child, and pay more than half the cost of maintaining your household.
Benefits of HOH status:
- A higher standard deduction of US$21,900 in 2024
- Lower tax rates compared to married filing separately
This option can be advantageous for single-income families with dependents.
Let’s consider an example:
- You: A US citizen living in Chile, earning US$100 in interest from a US bank account
- Spouse: A Chilean citizen working in Chile
In this scenario, you must file a US tax return because your income exceeds US$5. However, your spouse’s income is not reported unless they elect to file jointly. By applying the US$14,600 standard deduction, your taxable income would be US$0, and you would not owe any US taxes.
What is the nonresident spouse election?
The nonresident spouse election lets US citizens or green card holders treat their nonresident spouse as a US tax resident. This choice can make filing taxes easier and allow for bigger deductions, but it also means reporting both spouses’ worldwide incomes on a joint tax return.
How do you make the election?
To make this choice, you and your spouse need to:
- Write a declaration letter to the IRS, signed by both of you, stating that you want to treat your nonresident spouse as a US tax resident.
- Attach this letter to your first joint tax return (Form 1040).
- Get an Individual Taxpayer Identification Number (ITIN) for your spouse if they don’t already have one.
Once made, the election applies every year unless you cancel it.
What are the benefits of this election?
- Higher standard deduction: Filing jointly gives you a higher standard deduction, which is US$29,200 for 2024.
- Eligibility for tax credits: You can claim credits like the Child Tax Credit (CTC) when filing jointly.
- Simpler reporting for shared income: Joint accounts or shared income are easier to handle with a joint return.
Why should you consult a tax advisor?
Understanding the interaction between US and Chilean tax systems can be complicated. A tax advisor with expertise in expat tax rules can help you:
- Determine the best filing status for your situation
- Maximize deductions and credits
- Avoid common mistakes and penalties
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Chile. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
