Community Property adjustment when filing jointly in multiple states

[spoon]

I live and work in State A, a community property state, and my wife lives in State B. We file as Married Filing Jointly. Since I live in a community property state, I believe my work income is community income, and therefore half is considered my wife's income, and therefore, taxed by state B since she is a resident there.

When filling out my State B taxes in TurboTax online, it doesn't seem to calculate any taxes for State B, leading me to think that it did not consider half of my work income as taxable in State B. It did ask how much of my income came from State B sources, which I answered 0 since my work income is all from State A sources.

I tried searching for "community property" in TurboTax online but I cannot find a screen for community property income adjustments.

[TomD8]

If your wife's filing status in "State B" is Married Filing Separately, you should read this previous TT answer: https://ttlc.intuit.com/community/using-turbotax/help/how-do-i-prepare-a-joint-federal-return-and-se...

[spoon]

We are filing Married Filing Jointly for federal and both states.

[TomD8]

What state is "State B" in your scenario?

[spoon]

Say State A is California and State B is Oregon.

[TomD8]

See this for allocating income:  https://ttlc.intuit.com/community/taxes/discussion/how-do-i-allocate-income-between-myself-and-my-sp...

Your work income is entirely CA-source income.  Your wife's share is taxable by both CA and OR.  It is taxable by CA because CA taxes non-residents on CA-source income.  It is also taxable by OR because OR taxes its residents on all income from any source.  

But note paragraph (7) in this reference, regarding taking a credit on the OR return for taxes paid to CA on the same income:  https://secure.sos.state.or.us/oard/viewSingleRule.action?ruleVrsnRsn=20171 

[spoon]

My work income is on W-2, and when entering a particular W-2 in TurboTax, I can only select it as for me or my wife, so I don't see how it can be "allocated" between me and my wife.

Oregon does not allow Oregon residents to claim a credit for double-taxed income sourced in California. The credit must be claimed on the California nonresident return instead. (Oregon and California are "reverse credit states".) See "Example 2" on that page. I am not sure how that interacts with section (7) you mentioned.

[TomD8]

@DanielV01   --  Can you help with this one?

[DanielV01]

@TomD8 and @spoon  I'm seeing this almost two months after the original post, so I apologize I didn't answer sooner.  But, for @spoon 's situation, he will file a California nonresident return, Married Filing Joint.  This will allow for the "reverse credit" provision to be claimed on the California return.

However, for the Oregon return, there are two options.  Per Oregon Pub 17, you have the option of either filing as Married Filing Separate on a Oregon Resident Return (claiming only spousal income which is taxable to Oregon), or filing Married Filing Joint on an Oregon Resident Return.  @spoon 's CA income would be excluded from the return since he is a nonresident.  

As mentioned, the reverse credit arrangement between CA and OR makes your situation a little more complicated, since Oregon taxes the wife's income as an Oregon resident, and CA gives priority to OR tax for this reason.  However, CA community property laws do not actually apply.

[spoon]

Sorry I didn't see this response. I want to mention that what you said about my CA income not taxable in OR seems to contradict what it says in OR Publication 17, section "Filing status", subsection "Married filing separately with community property income", Example 3, in which Kevin is CA resident and Lori is OR resident, but half of Kevin's income is reported on Lori's federal and OR returns even though they file separately.

[Mellie64]

Daniel,

Referring to the 2019 post, I have a similar situation. Wife is an Oregon resident all year, has some Oregon wages/SS/CalPERS pension with no California income EXCEPT she's married to a California resident. If the 2019 message is accurate,  we can file jointly all 3 returns (Fed'l, Oregon, and Calif) using OR nonresident forms and CALIF nonresident forms.

Is the 2019 statement "...CA income would be excluded from the return since he is a nonresident..." accurate in 2023? 

The second part is...shall I file federal and Oregon electronically 1st, then take the double-tax credit on the California return and file that one after Oregon is accepted? Whew. Complicated!