When filing Married Filing Separately (MFS) in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA, WI), you would report 50% of your spouse’s 401(k) contributions and 50% of their wages on yo...
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When filing Married Filing Separately (MFS) in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA, WI), you would report 50% of your spouse’s 401(k) contributions and 50% of their wages on your tax return. You must file Form 8958 to allocate this community income.
TurboTax generates Form 8958 (Allocation of Tax Amounts) when you select "Married Filing Separately" in a community property state. Search for "8958" in TurboTax, select the "Jump to" link, and answer "Yes" to community property adjustments to trigger the necessary worksheet for dividing income and withholdings.
IRS Form 8958 is used by married couples or Registered Domestic Partners (RDPs) living in community property states who file separate federal income tax returns. It allocates community income, deductions, and withholding between both spouses (50/50 split), ensuring correct tax reporting. It is mandatory in these states.
When you file separately in a community property state, you must follow your state's definition of separate and community property. You would split your wages equally. Similarly, split withholding, deductions, and credits, as each spouse is only responsible for their 50% share (withholding is shown on Line 11 of Form 8958). Also, if you file Married Filing Separately, you must either both itemize or both take the standard deduction.
The IRS suggests married couples in community property states look at their tax situation under both joint and separate filing options to determine which version saves them the most. Filing a joint return may be less complex and qualify you for tax credits. Filing separately depends on your situation and how your itemized deductions stack up against the Standard Deduction.
When you live in a community property state and file separate returns, you each must report 50 percent of your spouse's income and half of income generated by community assets, plus all of your separate income. The IRS has an allocation worksheet to simplify your calculations in Publication 555 Community Property. You also have to decide who will claim dependent children.
You can use TurboTax Online to test different scenarios before deciding to file jointly or separately. Click here for more information. Once you decide, you can use either Online or Desktop to prepare the return(s).
Click here for tax tips for community property states.
See this tax tips article for more information about entering information on Form 8958.