I'm active duty military and a resident of California while my spouse (non-military) is a resident of Colorado. Because of this I file joint federal, but separate on our state returns. For the state return portion it flags all of my Roth contributions as excess due to my AGI being above $10,000 whereas it is allowed on my joint federal return. Is it correct in stating that I should be penalized for my contributions?
Do you prefer your wife to file as a resident of Colorado rather than claiming California as her residency?
She would prefer to keep her Colorado residency, but also we are just returning to the U.S. from an assignment in Germany, so my understanding is that she wouldn't be able to claim residency of California under the Military Spouse Residency Relief Act as we've never lived in California together.
The Veterans Benefits and Transition Act of 2018 changed the rules and your spouse is allowed to claim your state of legal residence (California) for tax purposes without ever have lived there. Therefore, she could claim California for tax purposes.
Veterans Benefits and Transition Act of 2018
For any taxable year of the marriage, the spouse of a servicemember may elect to use the same residence for purposes of taxation as the servicemember regardless of the date on which the marriage of the spouse and the servicemember occurred.
For filing purposes this year would that require her to get a license and actually establish residency or are we able to just file joint in California?