Both live in SC, Spouse works remotely for NC company

[GoJackets79]

We have filed MFJ in the past; NC nonresident return wants to know my income along with spouse. Should we switch to MFS since my income is none of NC's business? We already know spouse is going to be shafted on the non-reciprocity of these two states. Can we file MFJ for Fed and MFS for state(s). Thanks

[TomD8]

If you're both residents of SC, and your wife's work is performed 100% remotely from an SC location, then her income is not taxed by NC, and there is no need to file an NC tax return.  (Her income is of course 100% taxable by her home state of SC.)

A handful of states tax non-resident remote workers, but NC is not one of those states.

NC taxes the work income of non-residents only on work actually (physically) performed within NC.

If NC taxes were mistakenly withheld from her pay, she would have to file a non-resident NC return on which she declared zero NC income, in order to receive a refund of those taxes.

[GoJackets79]

Thanks for the rapid response! Sadly, her employer (a big bank based in NC ...) thinks that their remote workers are subject to NC tax and withholds accordingly.

[TomD8]

You should file an NC return on which your wife declares zero NC income, but reports her NC withholding.  This should result in a complete refund of her NC tax withholding.

You can file the return MFJ.  You'll have to put both your incomes on the return, but you won't be taxed.

You could file the NC return MFS, but North Carolina makes you jump through some hoops if you file federal MFJ and NC MFS.  From page 12 of the 2021 NC filing instruction booklet:

"If you file a joint federal return and your spouse is a nonresident of North Carolina who had no North Carolina taxable income, you may file a joint N.C. tax return or a married filing separately N.C. tax return. If you choose to file a separate N.C. return, you must complete either a federal return as married filing separately reporting only your income and deductions or a schedule showing the computation of your separate income and deductions and attach it to your N.C. tax return."

https://www.ncdor.gov/media/13143/open

If NC questions the return, explain to them that your wife is an SC resident who never sets foot in NC for her work.