Here is my situation:
I have been married a little over a year. My wife is trying to use the Public Service Loan Forgiveness (PSLF) program to get her student loans forgiven. This program requires that she is on an income-based repayment (IBR) plan for 120 payments (10 years), which she is close to finishing. Our new marriage is complicating things. I make significantly more money than her. While we would save money on our TAXES filing jointly, we decided not to do that, because we did not want to disqualify her from her IBR / PSLF. Instead, we decided to file our taxes separately (MFS). Both of us make money primarily via employment and get W2s. The complication of this is that we live in California, which is a "Community Property" state.
Here are my questions:
The IRS documentation makes it seem like wages (our primary source of income) could (or should?) count as community income. I know that simply reporting each other's income on our tax return is required (we can do this via Form 8958), and in Turbo Tax on the screen titled "Community Property - Wages."
(Question 1) What I can't figure out is if doing the Community Property Income ADJUSTMENT is required, and if I would want to AVOID doing that adjustment if NOT required (given that I want to keep my wife's AGI low for the purposes of her loan forgiveness).
(Question 2) If I SHOULD do the Community Property Income Adjustment in TurboTax, how the heck do I do it? There seem to be two screens where you enter the information for the adjustment, and I don't understand how to fill it out. From the viewpoint of my federal return, how should I fill out the following fields?
Screen 1 - Community Property Income Adjustments: (it sounds like there are a few ways to fill this out)
- Community Property Addition Adjustments: do I put my wife's W-2 box 1 here (wages) here? (she has no other income)
- Community Property Subtraction Adjustments: do I put MY W-2 box 1 here (wages) here? Should I include ALL income in this?
Screen 2 - Tax Withholding Adjustments:
- Tax Withholding Addition Adjustment (Federal / State) - do I put my wife's W-2 box 2 (federal income tax withheld) here for federal, and box 17 (state income tax) here for state?
- Tax Withholding Subtraction Adjustment (Federal / State) - so, first off, it won't let me put a positive number here, which is very confusing, considering that the previous screen's subtraction adjustment requires a positive number. If I do enter negative numbers, do I put my W-2 box 2 (federal income tax withheld) here for federal, and box 17 (state income tax) here for state?
