How to enter W-2 forms for married filing separately in a community property state?

Forum|Forum|3 years ago
February 12, 2023
1 reply
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My wife and I are Married Filing Separately in California, which is a community property state. How should I enter the W-2 forms on both of our taxes?

It looks like I need to report all of our W-2 forms on each of our tax returns, and manually divide the values in half. Is that correct? It also looks like TurboTax forces me to report my wife's W-2s as mine on my return, and my W-2 as my wife's on my wife's return? (Attempting to manually check the form as belonging to my spouse causes TurboTax to report this as an error, which sort of makes sense, but I just wonder if this is going to end up confusing the IRS if TurboTax reports the W-2 with the incorrect employee SSN.) If I enter the actual full values from the W-2 (without dividing in half) it looks like TurboTax would double-report our income earned.

I know that I also need to fill out the community property worksheet for form 8958, but it looks like this doesn't affect the income numbers reported on form 1040 computed from the W-2 values, which is what makes me think I need to manually divide the W-2 numbers in half when entering them.

In the past we have filed with a CPA, who has reported half of the income and withholdings on each of our returns, along with form 8958 explaining the allocation, as well as a supplemental information form explaining the split.

Also, before anyone comments, I am fairly certain that MFS will result in a lower tax than MFJ in our situation. California has some (uncommon) state taxes where the income limits are somewhat unfortunately not doubled when filing jointly, making it beneficial to file separately.

ErnieS0

Level 15

Don’t include your wife’s W-2 on your income tax return or your W-2 on her return. What you will include is a community property adjustment to equalize the income and withholding on both returns.

This is done manually.

The IRS will not get confused. That’s what Form 8958 is for. This form shows IRS your total joint income and how you divided it among the two returns so they can match both returns to make sure nothing was missing.

Form 8958 does not affect the tax calculation on your Form 1040. It’s informational.

With a community property adjustment, you are basically breaking down your income twice — once on Form 1040 and once on Form 8958.

There is an excellent discussion on this at How do I figure what the community property income adjustment is? We are married filing separately, her income was 111,661 and mine was 76,812.

Also see Married Filing Separately in community property states.

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Adam_TaxesAuthor

Level 2

For the community property income adjustment, how should this be calculated for different types of income?

e.g. say

- My W-2 wages are 100,000

- My wife's W-2 wages are 50,000

- We have 10,000 of long term capital gains income reported on a 1099 under my name

- We have 5,000 of dividend income reported under my name

- We made 10,000 in mortgage interest payments reported on a 1098 in my name

How should all of this be reported simply via the community property adjustments? If I report a community property income adjustment, it looks like this applies to line 8z on Schedule 1, but it looks like dividend income on form 8960 is still calculated using the full account for my tax return, rather than half of the amount. (Even after reporting that the dividend income should be split 50/50 on the community property worksheet.)

Other forms like 8959 also look like they are being computed on my return using just my W-2 numbers, rather than half of our combined numbers.

RobertB4444

Level 15

All of that income should be evenly divided on the community property worksheet. Make sure you have completed all of the entries in the tax return before you worry about whether the system is doing the math properly. Sometimes making the sausage takes a minute.

@Adam_Taxes

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