Community property self-employment income reduction?

[separate899]

Does this Revenue Ruling change anything?

https://www.withum.com/resources/post-divorce-taxation-non-qualified-stock-options/

[edrcpa]

I got the following error message:

"Error 404: Page not found"

What is the Revenue Ruling number?   I should be able to find it easily.

[separate899]

Revenue Ruling 2004-60. Found a different link: https://divorcefinancialtraining.com/wp-content/uploads/2020/12/2004-Article-Divorce-and-Stock-Optio...

And another article: https://www.plansponsor.com/irs-clarifies-non-qual-compensation-tax-status/

After reading all this and looking into the 1099 forms further, the effect of having my ex pay self employment taxes still wouldn’t occur through a 1099-misc. It would if I issued a 1099-nec; however, as you pointed out, he didn’t perform services. So, I will go the route of requesting reimbursement and hope it doesn’t cost me thousands of dollars in lawyers fees to enforce our separation agreement.

Can I ask to be sure?

If I follow the community income rules and report a negative amount on Form 1040, Schedule 1, Line z, does the tax reimbursement he owe me based on 7.65% or 15.3%?   I am unclear what portion of the self-employment tax he will owe me if he reports a positive amount of Schedule 1, line z.

[edrcpa]

The facts in Revenue Rulings 2002-22 and 2004-60 aren’t the same as in your situation.   In Revenue Rulings 2002-22 and 2004-60, the stock options were transferred to the non-employee spouse before the options were exercised.   I think that RSUs aren’t transferable but, in any case, you didn’t transfer the unvested RSUs.   You received the shares resulting from the vesting of the RSUs (which triggered the self-employment income) and then transferred the shares to your former spouse pursuant to your divorce settlement.

On the issue of community property, I didn’t venture an opinion previously because it wasn’t a tax issue but I thought that the allocation between community and separate income might be based on the vesting period.   I did some further research and found that, according to several state court cases, the allocation between community and separate property is based on when the RSUs vested (i.e. when single, married or divorced).   Not surprisingly, the cases were in state courts because community property is determined under state law.

I used the search term “unvested RSUs and divorce.”   Here are links to selected articles and state court cases.

Articles:

https://www.survivedivorce.com/rsu-restricted-stock-unit-divorce

https://www.magnusonlowell.com/blog.asp?catid=6&blogid=240

https://www.pgclawoffice.com/family-law/what-you-need-to-know-about-restricted-stock-units-rsus-and-...

State Court Cases:

https://law.justia.com/cases/washington/supreme-court/1995/61176-9-1.html

https://law.justia.com/cases/california/court-of-appeal/3d/154/780.html

https://law.justia.com/cases/california/court-of-appeal/3d/177/150.html

With respect to your question regarding reimbursement based on the “all taxes” wording of the divorce decree, I think that a logical methodology would be to calculate the increase in your tax liability reporting 100% of the RSU income as opposed to 50%.   That difference would be a combination of two factors: the increase in self-employment tax and the decrease in income tax resulting from the deduction for 50% of the self-employment tax.

You are correct, of course, about the difference between a Form 1099-MISC and a Form 1099-NEC.