LLC With a Nonresident Spouse: Partnership, Withholding, Filings

Is a husband and wife LLC a partnership when one spouse is a nonresident alien?

Yes, by default. A domestic LLC with at least two members that has not elected corporate tax treatment is a partnership for federal income tax, and being married does not change that (IRS: Publication 541; Publication 3402). A spouse who is a nonresident alien (not a citizen, and not a resident under the green card or substantial presence test) is a foreign partner, because a foreign partner is any partner who is not a US person (IRS: Instructions for Forms 8804, 8805 and 8813; Publication 519).

Tax status decides this, not where your spouse lives. A spouse who is a US citizen or green card holder is a US partner even while living abroad. A spouse living in the US on a visa is often a resident under the substantial presence test, though days as a student, or as a teacher or trainee on a J or Q visa, generally do not count (Publication 519); see Starting an LLC on a visa.

The exception for purely domestic partnerships does not fit, because it requires every direct partner to be a US citizen or resident alien. A small LLC can still skip Schedules K-2 and K-3 if it meets the Form 1065 Schedule B question 4 test (total receipts under $250,000, total assets under $1,000,000, K-1s on time, no Schedule M-3) and tells the partners; if a partner asks for Schedule K-3 in time, the LLC must file them (IRS: Schedules K-2 and K-3 instructions).

What makes a case not simple:

• Adding your spouse to an LLC you own alone: it becomes a partnership with a foreign partner from that date, and giving your spouse the interest can be a gift that needs Form 709.
• Community property: whether the IRS spouse rule can apply when one spouse is a nonresident alien is unsettled.
• A joint return: it changes your income tax return, but probably not the LLC's withholding.
• Where the work happens: it decides how much of your spouse's share is US business income.
• A year already filed as one Schedule C: missed Form 1065 and missed withholding carry separate penalties.

Gather the operating agreement and amendments, each spouse's ownership share, start date and money paid in, where each spouse lives, is domiciled and actually works, the state of formation, prior returns, whether you file jointly, and whether your spouse has an ITIN.

Can we use the community property rule or a qualified joint venture instead?

A qualified joint venture is not available. It covers only spouses who own a business directly, not through an LLC, and it requires a joint return (IRS: Election for married couples).

The community property rule is unclear for this case. Revenue Procedure 2002-69 lets spouses who own an entity entirely as community property, under the law of a state, a foreign country or a US possession, report it as either a disregarded entity (no Form 1065) or a partnership. The procedure says nothing about citizenship or residence (Revenue Procedure 2002-69). Two IRS rules make it hard to apply when one spouse is a nonresident alien:

• Whether the LLC interest is community property depends on the law where each spouse is domiciled; spouses with different domiciles must check the law of each (IRS: Publication 555).
• When one spouse is a nonresident alien and you have not both chosen resident treatment, certain community property laws are disregarded: business income belongs to the spouse carrying on the business, and a partner's share belongs to that partner (Publication 519).

With the procedure silent and these rules pointing the other way, reporting the LLC as disregarded is a judgment call to document with a professional, and a later switch between partnership and disregarded reporting is treated as a conversion of the entity. For two US-resident spouses, see Spouse and family LLCs.

If we file a joint return, is my spouse still a foreign partner?

For withholding, probably yes. The joint-return choice treats a nonresident spouse as a US resident for the income tax chapter of the Internal Revenue Code, wage withholding and a few filing rules (26 U.S.C. 6013(g); Regulations section 1.6013-6). Section 1446 partnership withholding sits in a different chapter, chapter 3, which covers withholding on foreign persons (26 U.S.C. 1446).

The section 1446 regulations cut both ways: a partner treated as a US person only for certain specified purposes is still a foreign partner, but one treated as a US person for all income tax purposes by election, who gives the LLC a Form W-9, is not (Regulations section 1.1446-1(c)). The IRS instructions for Form W-8BEN are more direct: a spouse who makes this choice is still a nonresident alien for chapter 3 withholding on all income except wages (IRS: Instructions for Form W-8BEN). No IRS source names this exact case for partnership withholding, so a joint return alone does not settle whether the LLC can stop withholding.

You both sign a statement attached to the joint return for the first year of the choice. Under it, both spouses are taxed on worldwide income and neither can use a treaty to claim nonresidence; the choice continues into later years until it is suspended or ended (Publication 519). Each of you is liable for the whole tax on a joint return, for as long as the IRS can collect it (26 U.S.C. 6013(d)(3)). Your spouse claims the LLC's withholding as a credit on that return with Form 8805 attached (IRS: Instructions for Forms 8804, 8805 and 8813). Whether the choice pays off is covered in Married to a nonresident.

What must the LLC withhold on my spouse's share if no cash is paid?

The LLC must pay withholding tax on the taxable US business income (effectively connected income, explained below) allocated to your spouse, whether or not it distributes any cash. For a foreign partner who is an individual, the rate is generally 37% (26 U.S.C. 1446; IRS: Instructions for Forms 8804, 8805 and 8813).

Your spouse documents foreign status on Form W-8BEN, and the LLC files the forms in the table above even in a year with no distributions or no taxable income to withhold on (IRS: Instructions for Forms 8804, 8805 and 8813). A partnership that fails to withhold can be held liable for the tax, penalties and interest (IRS: Partnership withholding). US dividends or interest that are not business income fall under separate withholding rules (IRS: Partnership withholding). Installment amounts, Form 8804-C and state withholding are in Foreign partners' withholding.

Does my spouse's share count as US business income if my spouse works abroad?

It depends on where the LLC earns its income, not on where your spouse lives. A nonresident partner is treated as engaged in a US trade or business whenever the partnership is (26 U.S.C. 875), and a share of US-source profits of a partnership with a US business is effectively connected income (Publication 519).

If you work for the LLC from the US, the LLC usually has a US business, and your spouse's allocated share of that income is effectively connected even if your spouse did none of the work (Publication 519). An operating agreement can split income other than by ownership, but the IRS respects the split only if it has substantial economic effect; otherwise income follows each partner's interest in the LLC (26 U.S.C. 704(b)); see Operating agreement tax terms. A tax treaty can change the answer; see When foreign owners owe US tax. If you both live and work abroad and the LLC has no US office, its income may not be effectively connected at all. If none of it is, there is no section 1446 withholding, but the LLC still files Form 1065 for any year with income or deductions (Publication 541).

What does my nonresident spouse file in the US?

Your spouse files Form 1040-NR to report the share of effectively connected income and claim the LLC's withholding as a credit, with Form 8805 attached (Publication 519; IRS: Instructions for Forms 8804, 8805 and 8813). For a calendar year without US wages subject to withholding, Form 1040-NR is due June 15 of the next year. Refunds of partnership withholding can take up to 6 months (Publication 519).

Your spouse needs a US taxpayer identification number: an ITIN, unless your spouse already has a Social Security number. The LLC must report one for each foreign partner so the withholding is credited properly, but it must pay the withholding even before your spouse has one (IRS: Instructions for Forms 8804, 8805 and 8813). A first-time applicant generally attaches Form W-7 to the first Form 1040-NR, or to the joint return if you both choose resident treatment; the IRS allows 7 weeks, or 9 to 11 weeks from overseas or in peak season (IRS: Instructions for Form W-7). See ITIN for a foreign owner.

A nonresident alien generally owes no US self-employment tax unless a social security agreement provides coverage (Publication 519), and the joint-return choice does not by itself make your spouse a resident for this tax (Regulations section 1.6013-6). Your own share stays subject to self-employment tax. For deductions, estimated tax and state returns, see Nonresident return for business income.

Would making me the only owner, or a corporation, be simpler?

Each option removes one set of filings and adds another.

An existing LLC becomes a corporation for tax by filing Form 8832, which the IRS treats as the LLC transferring its assets and debts to a new corporation for its shares; the election can take effect no more than 75 days before it is filed (Regulations section 301.7701-3). For the end of the partnership, see LLC down to one member. For the corporation choice, see LLC or C corporation and Company with a foreign co-owner.

What changes if my spouse moves to the US or gets a green card?

Your spouse stops being a nonresident alien from the residency starting date. Under the green card test, that is generally the first day in the year your spouse is in the US as a permanent resident; under the substantial presence test, generally the first day present in the US that year (Publication 519).

A partner must give the LLC a new withholding certificate when circumstances change, including a change in US status (IRS: Instructions for Forms 8804, 8805 and 8813), so your spouse replaces Form W-8BEN with Form W-9. The year of the move is generally a dual-status year unless you choose resident treatment (see First year as a US tax resident), and how the LLC's withholding for that year reflects the change needs review. Resident aliens owe self-employment tax under the same rules as citizens (Publication 519). See Moving to the US with your US company.

What if we already filed one Schedule C for the LLC?

The LLC may then owe a late Form 1065 and a late Form 8804 for each year, plus withholding it never paid. A late Form 1065 costs $260 per partner per month for this page's tax year, slightly less for earlier years (IRS: Instructions for Form 1065; Revenue Procedure 2025-32).

The usual small-partnership penalty relief does not fit this case: it requires every partner to be an individual other than a nonresident alien, or an estate (IRM 20.1.2). Other relief may apply; see Late partnership return penalty relief and, for the missed withholding and its penalties, Foreign partners' withholding. Gather each year's ownership records, bank statements and filed returns before deciding what to correct.

Example

Illustrative figures in US dollars; tax is shown before deductions.

Spouses in Seattle and Tokyo, no joint return

A US citizen in Seattle and his wife, a nonresident alien domiciled in Tokyo, own a Washington LLC 50/50. He does all the client work from Seattle, and the LLC nets $100,000 from US clients. Washington is a community property state, but whether the interest is community property depends on each spouse's domicile; unsure, the couple files as a partnership. The LLC files Form 1065 with a $50,000 K-1 for each spouse. Her $50,000 is effectively connected income, so the LLC pays $18,500 (37%) in installments, files Form 8804 and gives her Form 8805, though it distributed nothing. She gets an ITIN, files Form 1040-NR reporting $50,000, and claims the $18,500 as a credit; any excess over her actual tax is refunded.

The same couple files jointly

They choose resident treatment and file one joint Form 1040, which now also includes her income from Japan. Because no IRS source settles whether the choice ends her foreign-partner status for withholding, the LLC keeps withholding: it still pays the $18,500 and issues Form 8805, and the couple claims the credit on the joint return.

The husband becomes the only owner

• Year 1: On June 30 the wife transfers her interest to the husband. The LLC files a final Form 1065 for January to June, due September 15, with withholding on her share for that period, and checks whether the transfer needs section 1446(f) withholding. He reports July to December on Schedule C.
• Year 2: One owner, one Schedule C, no Form 1065 and no partnership withholding.

Different for you?

• You are about to add your spouse to your LLC: see Adding a member to your LLC and get business tax help before the change takes effect. Gifts to a non-citizen spouse above $194,000 a year generally need Form 709, due April 15 after the gift year (IRS: Instructions for Form 709); see Married to a nonresident.
• You already filed one Schedule C, or the LLC never withheld: get business tax help with each year's returns and ownership records; the penalty side is in Late partnership return penalty relief.
• You live in a community property state or country and want disregarded treatment: have the position reviewed with business tax help before filing.
• Both spouses live in the US: see Spouse and family LLCs.
• Neither of you is a US citizen or resident: see LLC owned by two non-residents.
• You are a US citizen living abroad too: see Filing while living abroad and get business tax help on whether the LLC has US business income.
• Your co-owner is not your spouse: see Company with a foreign co-owner.
• You are deciding whether to file jointly: see Married to a nonresident.
• Your spouse needs an ITIN or a first Form 1040-NR: see ITIN for a foreign owner and Nonresident return for business income.
• Your spouse is moving to the US: see Moving to the US with your US company.