California state tax return (Non-resident spouse)

[Jamesz456]

My wife and I are unofficially separated, will be filing for divorce this year. I am in California. My wife is in Arkansas where she lives, works, and a resident of. I have an Arkansas driver’s license and we still own a house in Arkansas which is in both of our names. I haven’t been in Arkansas since the end of 2020. I lived abroad (no foreign income) and then in the end of June 2021 came to California and has been here since then. I am working here part-time (w-2 employee) and my 2021 income is $10,000. My wife is self-employed in Arkansas and her 1099 income is $15,000. We are thinking of filing taxes MFJ or maybe MFS.

I have several questions regarding my situation:

1. If our combined income is only $25,000 do we even need to file a California state tax return? (What happens if we don’t?)
2. If we have to file do we file CA resident or (Non resident/part year resident)?
3. If we do file, I know that CA is a community property state, so some of my wife’s income has to be reported even thought she was never in this state and all here income is from Arkansas. How do we go about that? (Specifically how to put our income on the form if filing MFJ or MFS?)
4. Neither of us had health insurance in 2021 and in CA there’s a penalty for not having health insurance. There are several exemptions like income below filing threshold which might be our case. But if we don’t file CA return at all is there going to be a problem that we didn’t claim an insurance requirement exemption on the state return and we get penalized?
5. Lastly, when I first came to California and started working here I used to put Arkansas as my resident state, so I got a W2 from one employer for 2 states (Arkansas and California). It shows $700 Arkansas income. So, if for example we don’t file a CA tax return due to low income, should I file an Arkansas state return as a Resident or Non-Resident.

Thank you

[MaryK4]

1. Generally, you must file an income tax return if you ae required to file a federal return, receive income from a source in California, and have income above a certain amount (see Filing requirement)  Since they look only the California income, the $10,000 income is well below the filing threshold.  You may want to prepare a return in TurboTax to get your withholding refunded and see if you qualify for any state credits.

2. You must determine if you have a California domicile.  See Visit Guidelines for Determining Resident Status (FTB Publication 1031) for more details and if you have not, start thinking about this. For a California tax return, there can be a resident and a nonresident spouse.

3. If you file joint, all of your income would be included so there is no issue.  If you filed separately, the California income would be split, but the Arkansas income would not.  Community income includes salaries, wages, and other pay received for the services performed by you or your spouse during your marriage while domiciled in a community property state.  

4. You would definitely qualify for the low income exemption for not having Health Insurance.

5. If you file a joint federal return, for Arkansas, you can file Filing Status 2 (Joint), which requires the total income of both spouses to be added together. If you file a joint federal tax return you are not required to file a joint state tax return. You may file Status 4 (Married Filing Separately on the Same Return), which requires the primary taxpayer’s income to be entered in Column A and the spouse’s income to be entered in Column B.  You can also file Separate.