CARES Act Relief: How US citizen taxation leads to sending relief money to individuals outside the United States and denies relief money to individuals inside the United States


This post is based on my Quora answer to the question: “Do you agree with the policy of not issuing checks to US citizens who jointly file taxes with someone who has an ITIN?

Part I – Objective Analysis

This post focuses on the class of individuals entitled to relief. It does not discuss how the relief is administered.

The statute authorizing the relief is found in Section 6428 or Subtitle F (the Procedure And Administration section of the Internal Revenue Code). The following sections specify WHO is entitled to the relief:

§6428. 2020 Recovery rebates for individuals

(d) Eligible individual

For purposes of this section, the term “eligible individual” means any individual other than-

(1) any nonresident alien individual,

(g) Identification number requirement

(1) In general

No credit shall be allowed under subsection (a) to an eligible individual who does not include on the return of tax for the taxable year-

(A) such individual’s valid identification number,

(B) in the case of a joint return, the valid identification number of such individual’s spouse, and

(C) in the case of any qualifying child taken into account under subsection (a)(2), the valid identification number of such qualifying child.

(2) Valid identification number

(A) In general

For purposes of paragraph (1), the term “valid identification number” means a social security number (as such term is defined in section 24(h)(7)).

(B) Adoption taxpayer identification number

For purposes of paragraph (1)(C), in the case of a qualifying child who is adopted or placed for adoption, the term “valid identification number” shall include the adoption taxpayer identification number of such child.

In summary this means that:

Those who are conditionally entitled to relief include, ANY individual except a nonresident alien, provided that they:

– have a Social Security Number (who is eligible for a Social Security Number?); and

– do NOT file jointly with an individual who does not have a Social Security Number

Who is a “nonresident alien” and therefore NOT an “eligible individual”?

A. Individuals not eligible: “Other than any nonresident alien individual” – Section 7701(b)

Internal Revenue Code Section 7701(b) defines the circumstances which cause a nonresident alien to become a resident alien. It clarifies who is a “nonresident alien” and therefore NOT subject to US worldwide taxation. This issue is determined by either immigration/citizenship status or physical presence in the United States. It can be complicated and the Section 7701(b) regs are worth reading.

Eligibility because they are US citizens or Green Card Holders

Important point: US citizens and Green Card Holders are eligible without regard to whether they live in the United States. (The United States will be sending relief funds to other countries.)

Note that Green Card Holders and US citizens will have a Social Security number.

Eligibility because they meet the “substantial presence test”

Individuals who meet the substantial presence test cease to be “nonresident aliens” and become “resident aliens”. In simple terms, because they spend too much time in the United States, they are taxed on their worldwide income.

Some people who meet the substantial presence test will have a Social Security Number (those who are in the United States under a work visa). Others who meet the substantial presence test will NOT have a Social Security Number (those who do NOT have a work visa).

Important point: Many individuals who meet the substantial presence test and are subject to US worldwide taxation will not receive the payment. This includes nonresident aliens who work in the United States, pay taxes to the United States and even pay Social Security taxes to the United States! For an excellent article describing this see Francine Lipman’s The “ILLEGAL” Tax. They live and work in the United States, but are not entitled to benefits.

Interestingly, those individuals who are employed in the United States without having an appropriate visa ARE presumptively subject to Social Security taxes even if they are not able to get a Social Security number. As stated by the IRS:

“Wages paid to nonresident aliens employed within the United States by an American or foreign employer, in general, are subject to Social Security/Medicare taxes for services performed by them within the United States, with certain exceptions based on their nonimmigrant status.”

B. Disqualification based on filing jointly: Alien spouses electing to file jointly with a US citizen spouse – the Section 6013(g) election

The 6013(g) election and Americans Abroad:

Most US citizens living outside the United States are reluctant (and understandably so) to bring their nonresident alien spouse into the U.S. tax system. As a result, the US citizen is likely to use the “married filing separately” category which is generally punitive. As a general principle, the incentive to use the “married filing separately” category is actually a further tax on a US citizen living abroad. A US citizen using the “married filing separately” category, is paying a “stealth tax” for being married to a nonresident alien.

For a general analysis of how the Internal Revenue Code discriminates against US citizens who marry non-citizens see:

Americans abroad have lived with the consequences of the #FBAR Marriage for years. Now Homelanders are learning what it means to be married to a non-citizen

There are some Americans abroad who do file jointly with the Nonresident alien spouse. Unless the NRA spouse has a Social Security number, the US citizen spouse will be denied relief.

The 6013(g) election and the Homeland American:

For Americans abroad, I would generally not recommend that this election be used. For Homeland Americans, where both spouses live in the United States (and are both subject to US worldwide taxation), there are often incentives to file jointly.

That said, for both Americans abroad and for Homeland Americans, Section 6013(g) allows for the nonresident alien spouse to file jointly with a US citizen spouse and therefore to be treated as a “resident alien”. The IRS states that:

“If your spouse is a nonresident alien and you file a joint or separate return, your spouse must have either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). To get an SSN for your spouse, apply at a social security office or U.S. consulate. You must complete Form SS-5. You must also provide original or certified copies of documents to verify your spouse’s age, identity, and citizenship. If your spouse is not eligible to get an SSN, he or she can file Form W-7 with the IRS to apply for an ITIN. Refer to Taxpayer Identification Numbers (TIN) for more information.”

Important Point: A US citizen who files jointly with a nonresident alien spouse (who does not have a Social Security Number) is not entitled to relief.

For interesting commentary on disentitling US citizens who file with somebody with an ITIN from relief, see the following twitter thread:

C. Who is entitled to a Social Security Number and who is NOT entitled to a Social Security Number?

“Unless you are a noncitizen who wants to work in the United States, you probably don’t need a Social Security number. Generally, only noncitizens authorized to work in the United States by the Department of Homeland Security (DHS) can get a Social Security number. Social Security numbers are used to report a person’s wages to the government and to determine a person’s eligibility for Social Security benefits. You need a Social Security number to work, collect Social Security benefits, and receive other government services. Lawfully admitted noncitizens can get many benefits and services without a Social Security number. You don’t need a number to get a driver’s license, register for school, get private health insurance, or apply for school lunch programs or subsidized housing.”

Concluding observations:

The United States COVID-19 relief program:

– sends money outside the United States to be spent in economies outside the United States (via US citizens abroad and Green Card holders); and

– refuses to provide relief to individuals who live in the United States, work in the United States and are subject to US worldwide taxation and Social Security taxes.

Hmmmmm ….

Well, that’s the flip side of citizenship-based taxation.

Part II – Commentary – As goes taxation, so goes civilization

At first blush the denial of benefits to nonresident aliens would appear to exclude individuals who do not live and work in the United States. After all, the purpose of the benefits is to assist individuals in the United States economy. The reality is that the strange US rules of citizenship taxation and making ALL Green Card Holders US tax residents, leads to a situation where relief intended for the US economy is being sent abroad to other countries. Perversely, the program denies benefits who clearly spend time in the United States, are taxed by the United States on their worldwide income and pay US Social Security taxes.

Furthermore, Green Card Holders and citizens have Social Security Numbers. But, there are others who work in the United States, pay taxes to the United States (based on the substantial presence test) and do NOT have a Social Security (and have ITINs). They will be denied relief because they don’t have a Social Security Number and file with ITINs.

Disentitling ANY individual with an ITIN is grossly unfair to the large number of hard working US residents who (largely because of their immigration status) are not eligible for a Social Security Number. Some people call them illegals. Some call them undocumented aliens. But, the fact is that they do work in the USA and pay US taxes. This is very unfair. But, the unfairness gets even worse.

The United States also denies a US citizen relief simply because he/she filed jointly with a person who (because of immigration status) did not have a Social Security Number. This is very vindictive. It’s bad enough to deny benefits to somebody who does not have a Social Security. But, the United States is denying relief to individuals that would be entitled to relief, but for the fact that they filed jointly with a person without a Social Security number. Incredibly, the United States is punishing a US citizen living in France, who filed jointly with a non-US citizen spouse, for the sole reason that the spouse doesn’t have a Social Security Number. I wouldn’t have believed this kind of deliberate injustice was likely. That said, it appears that my assumption of the presumptive justice of America was misguided.

In practical terms, Congress is deliberately punishing US citizens who do not marry other US citizens. Sad, but true.

The biggest mistake of all …

Of course what is the biggest mistake is attempting to administer this relief through the US tax system – a system that is so complicated, with so many unintended consequences, that many people no longer understand (1) what is required of them and (2) what they can expect.

The history of America will explain how it was undone by a tax system that is so complex and unfair that nobody can really be in compliance.

John Richardson – Follow me on Twitter @ExpatriationLaw

Olivier Wagner – Follow Oliver @1040Abroad

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