Spouse living in different states with income earned in each; one being taxable and the other non-taxable.

[JoshReside]

I have a complicated situation and would appreciate any advice. My wife and I got married last year. We met in Florida when we were both Florida residents in 2015. In 2018 she moved to Maryland for the military and I moved to WV to be within driving distance and for my job. I still live in West Virginia and became a resident of WV upon moving. She lives in Maryland and is active duty military, but her state of residence is still Florida for tax purposes. We are going to file a married filing jointly return for the federal return, but things get tricky with my WV state return as it pulls in the federal gross adjusted income (including my wife's income which was earned in FL). My wife has no affiliation with West Virginia as she works in Maryland and all of her income is reported to Florida, which doesn't have a state income tax. There is no way for me to exclude her income from mine in the state return using the software as we technically are not getting a state return from Florida to claim any credits. Any advice would be greatly appreciated. I haven't seen anything like this online in discussions/forums/etc. If we have to file "married filing separately" we will definitely owe some more money with both fed and state.

Also, for those also thinking of the Military Spouse Residency Relief Act (MSRRA). I’m not sure I qualify since there are 3 states involved and we don’t live in the same state together. West Virginia (I live and work), Maryland (wife lives and works), and Florida (wife’s legal residence for state tax purposes).

[TomD8 · Accepted solution]

You are correct that MSRRA does not apply since your AD military spouse is not stationed in WV.

You should file your WV tax return using Married Filing Separately as your filing status.  You can do this even if you file a joint federal return.  The problem is that, if you file a joint return in WV, WV will tax your wife's income as well as yours, and will not allow you to take an "other state credit."  See page 14 of this reference, under "Filing Status":  https://tax.wv.gov/Documents/TaxForms/2019/it140.booklet.pdf

[JoshReside]

@TomD8 Perfect, thank you for the reference. I think filing separately for the state taxes will mean I owe quite a bit more, but based on that reference, it seems pretty clear that is what I will need to do.

[TomD8]

Seems like filing MFS in WV should result in a smaller state tax bill, since only your income would be taxed.  Remember you can still file your federal return as MFJ.

[JoshReside]

@TomD8 You are right. I meant more tax than I would have paid had we still been able to file the WV state return as MFJ and somehow deducted her income or received a credit. The WV state return filing as MFS is definitely much cheaper than what would have been owed doing the WV state MFJ as she would have had no state income withheld.

We will file MFJ for federal and MFS for WV state with just my income. Thanks for all of your help, I had been searching for how to file for days.

[TomD8]

Always glad to help a military family.

[JoshReside]

I do have one more follow-up question for @TomD8 or anyone else that can answer.

We also have 1099 income from our shared bank savings account and shared brokerage account. If my spouse lived in a state with income tax, how do you decide which state gets the tax money? I can't imagine the 1099 income would get double dipped in both states. In our case, could I say the income was with Florida, and not report it on my WV state return?

[JoshReside]

bump; for above question

[TomD8]

If the income is from joint accounts, just report half of it on your MFS WV return.