If my spouse and I are residents of state X and I receive UI from state X, but my spouse earns money from state Z do I need to report my unemployment income to state Z?

[Yume]

State Z has reciprocity agreements with State X, but we're residents of State X.  State X also doesn't tax UI benefits the same way as State Z.

[ErnieS0]

No. If you are filing nonresident income tax return, only report income from the nonresident state. Every state program is different, but you will generally see an allocation screen listing a federal amount and a state amount. All the state amounts should be $0 for the nonresident state except your spouse's earnings.

Many states start with federal income to create a base tax rate. If that is the case for your nonresident state, then your income will be indirectly included on the nonresident return. In these states, tax is computed by calculating the tax rate on all income and multiplying it by ()other state income ÷ total income) to get the actual tax liability.

[TomD8]

The answer depends on State Z's tax laws.  For example, if your wife has to file in State Z, and she files a joint return, you might have to report your unemployment compensation on that return, but in most cases it wouldn't be taxed.

[Hal_Al]

When asking about states, you really need to name the states.

For most reciprocity state situations, your spouse should not even be filing a state Z return

[Yume]

@ErnieS0 For some reason the workflow on the non-resident return wants it reported on the "Other Income" screen and accounts for the UCE adjustment.  When I enter the amount and run through the whole workflow it shows that I'm taxed on it by the non-resident state.

[ErnieS0]

@Yume States handle unemployment differently. I can't answer your question without knowing what state you are working on.

[Yume]

@ErnieS0 UI is from CA, state of employment of spouse is AZ.

[DanielV01]

@Yume  I assisted you in a separate thread.  As AZ residents, the unemployment is taxed in AZ.  Since California does not tax the Unemployment, then there is no credit to California for this portion of the income (it's not needed because California doesn't tax it).  Your home state always taxes all of your income no matter where you receive it.

Make sure that the Unemployment has been entered into the Federal Section as reported on the 1099-G.  TurboTax will do the math to subtract out the 10200 Federal amount and then carry over what applies in Arizona.

[Yume]

@DanielV01 Though part of the matter is that 2020 complicates things.  My state of domicile and residence for 2020 has to be filed as CA.  My spouse has crossed the threshold of residency and has to file as an AZ resident.  As both are community states would income from my spouse be considered 1/2 mine and 1/2 of my UI be counted as 1/2 theirs and thus claimed accordingly to each state?

[DanielV01]

Check what returns you are filing.  What you should be filing is a Married Filing Joint nonresident return for California and Arizona.  Both states will then only count the income that is earned and taxable in the state by the spouse that lives there.  Community property laws will be moot because you are filing jointly.

[Yume]

So I can get the AZ return to bring up a query about using the 140NR if I check "Confirm Main Form or Residency", but on the state screen both still say "resident" and appear to be joint.  Though as stated above I'm a CA resident for 2020 and my spouse is an AZ resident, but both state returns should be "non-resident"?

[DanielV01]

Correct.  Since you are not both California or Arizona residents, you will use the California nonresident return and the Arizona part-year resident return.  , This allows you to list yourself as a resident of CA, and have your income taxed there, while your spouse will have her income exempted from California taxation.  And the reverse will be true for Arizona.

[Yume]

@DanielV01 Is there an easy way to get it to use those appropriate workflows?

[DanielV01]

You have to go back to the beginning of each state interview.  If necessary, delete each and start over.  That way you can select the appropriate resident return for each.

[Yume]

@DanielV01 I started the CA one again.  Although since I'm a resident of CA and it asks the residency questions how do I answer them to get this workflow as it comes up the same as before?  I also want to ensure that this doesn't become an issue down the road if it incorrectly reports my residency for this year.