u.s. expat tax guide – chile
Do US expats in Chile need to report their spouse’s income?
US citizens living in Chile do not need to report their Chilean spouse’s income unless the spouse elects to be treated as a US tax resident.
The US tax system is based on citizenship, meaning US citizens must report their worldwide income to the IRS, but this rule does not apply to a non-US spouse unless they voluntarily opt in.
If your spouse does not make this election, their income is not included in your US tax return. However, your filing status and eligibility for tax benefits can vary depending on whether you file separately, jointly, or qualify as a head of household.
How can you avoid double taxation?
US expats in Chile can reduce or eliminate double taxation by using:
- Foreign Earned Income Exclusion (FEIE) – Excludes up to US$126,500 (for 2024) of foreign income from US taxes if you meet residency requirements.
- Foreign Tax Credit (FTC) – Gives dollar-for-dollar credit for Chilean taxes paid, reducing US tax liability.
- Totalization Agreement – Prevents double social security taxes for workers in Chile.
What are the Chilean tax obligations for US expats?
Chile taxes residents on worldwide income after three years of residency. Before that, they only tax Chilean income. Tax rates range from 0% to 35%, depending on earnings.
Do you need to report foreign assets?
Yes. If you own foreign bank accounts or investments, you may need to file an FBAR (FinCEN 114) and Form 8938 with the IRS.
When must a US citizen report their spouse’s income?
A US citizen must report their spouse’s income only if the non-US spouse chooses to be taxed as a US resident. This means that if your spouse works in Chile but does not elect US tax residency, their income remains separate and does not appear on your US tax return.
However, if your spouse does elect to be treated as a US tax resident, you must report all of their worldwide income, including earnings from Chile, even if those earnings are already taxed under Chilean law.
What is the minimum income for filing a tax return?
The IRS requires married individuals filing separately to file a tax return if their worldwide income exceeds US$5 for the year.
This applies even if:
- You live outside the US full-time.
- Your only income is from interest, dividends, or rental properties.
- Your spouse earns significantly more and is the primary financial provider.
Example:
- If you earn US$10 in interest from a US bank account, you are legally required to file a US tax return, even if your spouse is the household’s main earner.
Can a US citizen living abroad claim the standard deduction?
Yes, US expats can still claim the standard deduction to reduce their taxable income.
For 2024:
- Married filing separately (MFS): US$14,600
- Married filing jointly (MFJ): US$29,200
- Head of household (HOH): US$21,900
If your income is below the standard deduction, you may not owe any US taxes, but you must still file a return if your total income exceeds the filing threshold.
Example:
- If you earned US$50 in interest income, you must file a return because your income exceeds US$5.
- After applying the US$14,600 standard deduction, your taxable income is US$0, meaning you owe no taxes.
When does filing a joint return benefit US expats?
If your non-US spouse elects to be treated as a US tax resident, you can file jointly, which increases the standard deduction and opens eligibility for additional tax credits.
Advantages of filing jointly:
- Higher standard deduction of US$29,200 for 2024
- Potential eligibility for Child Tax Credit (CTC) and Earned Income Tax Credit (EITC)
- Easier tax reporting for shared income and assets
However, filing jointly also means reporting your spouse’s entire worldwide income, which may increase total taxable income.
When filing jointly makes sense:
- Your spouse’s income is low or already heavily taxed in Chile.
- You qualify for tax credits that offset additional income taxes.
- Your joint earnings remain in a lower tax bracket even after reporting all income.
What is the cost of obtaining an ITIN for a non-US spouse?
A non-US spouse needs an Individual Taxpayer Identification Number (ITIN) to file a joint US tax return. The ITIN application costs around US$300 and is valid for three years if not used.
If you have two children, the Child Tax Credit (up to US$4,000) could offset any tax liability, making the US$300 ITIN cost worthwhile.
Can you file as Head of Household instead?
Some US expats may qualify for head of household (HOH) status, which provides a higher standard deduction and lower tax rates than filing separately.
To qualify for HOH, you must:
- Have a dependent (such as a child).
- Pay more than half of your household expenses.
- Live separately from your spouse for at least six months of the year.
What Is the Nonresident Spouse Election?
The Nonresident Spouse Election allows a US citizen or green card holder to treat their nonresident spouse as a US tax resident for filing purposes.
This means:
- You can file a joint tax return and receive a higher standard deduction.
- Your spouse’s entire worldwide income must be reported to the IRS.
Once made, this election remains in effect every year unless revoked.
How do you make the election?
To elect US tax residency for a non-US spouse, follow these steps:
- Write a declaration letter to the IRS, signed by both spouses, stating that you elect to treat the nonresident spouse as a US tax resident.
- Attach the letter to your first joint tax return (Form 1040).
- Apply for an ITIN for your spouse if they do not have a Social Security Number (SSN).
This election can be revoked later, but any income previously reported will not be changed retroactively.
What are the benefits of this election?
- Higher standard deduction (US$29,200 for 2024, compared to US$14,600 for MFS).
- Eligibility for tax credits (such as the Child Tax Credit and Earned Income Tax Credit).
- Easier tax reporting for joint bank accounts, investments, and shared income.
However, reporting both spouses’ worldwide income may increase total taxable income, so professional tax planning is recommended.
How do estate and gift taxes apply to US citizens with a non-US citizen spouse?
If you are a US citizen married to a non-U.S. citizen, special tax rules apply when giving gifts or passing down assets. Normally, US citizens can transfer unlimited amounts to their US citizen spouses without paying taxes. However, this unlimited marital deduction does not apply when your spouse is not a US citizen, even if they live in the US.
How much can you give a non-citizen spouse without paying gift tax?
In 2024, you can gift up to US$185,000 to your non-U.S. citizen spouse each year without owing gift taxes. Any amount above this may be subject to gift tax. This limit is higher than the US$18,000 annual gift tax exclusion for gifts to other individuals.
How can a Qualified Domestic Trust (QDOT) help with estate Taxes?
A Qualified Domestic Trust (QDOT) allows a non-citizen spouse to inherit assets without immediate estate taxes. The money stays in the trust, and the surviving spouse can receive income, while estate taxes are delayed until principal distributions or their passing.
Does a US estate and gift tax treaty apply?
Some countries have tax treaties with the US that may reduce or eliminate gift and estate taxes. If your spouse is from a treaty country, they may be able to receive higher exemptions or avoid double taxation.
What are the tax implications of joint ownership with a non-US citizen spouse?
Owning property or bank accounts together with a non-US citizen spouse can have tax consequences. Whether it’s real estate, investments, or bank accounts, the way you own assets together affects taxes and reporting requirements.
Does adding a non-citizen spouse to an asset count as a taxable gift?
Yes. If a US citizen adds their spouse as a co-owner on a house or bank account, it may be seen as a gift for tax purposes.
For example, if you own a US$500,000 home and add your spouse as a joint owner, the IRS might consider this a US$250,000 gift, and anything above the US$185,000 exemption could be taxed.
What happens if a US citizen spouse passes away?
Unlike US spouses, a non-citizen spouse cannot automatically inherit tax-free. The value of the jointly owned property may be subject to estate tax unless a QDOT is set up.
Do foreign joint bank accounts need to be reported?
Yes. If a US citizen has a foreign account (even jointly with their non-US spouse), they must report it to the US Treasury if the total balance across all foreign accounts is over US$10,000 at any time during the year.
This is done by filing an FBAR (FinCEN 114) and possibly Form 8938. Failing to report foreign accounts can lead to penalties.
Why should US expats in Chile consult a tax advisor?
- Choosing the best filing status to minimize taxes.
- Maximizing deductions and credits while ensuring compliance.
- Navigating IRS requirements for reporting foreign assets and income.
