WA - CA MFJ federal return and MFS CA state return case

[ramyagirgis]

My wife and I are filing a joint federal return but we are doing separate state returns (got married in October 2017) and my wife then moved from CA to WA.

Regarding the community property rules, my wife worked in CA for 9 months, then she stopped working, we got married and then she moved to WA for the last 1.5 months of the year. Does the non-resident exception apply here since she was not domiciled in WA while she was working. Am I (being the CA non-resident) required to report California income? In other words, when preparing the separate mock federal return, we should only count in her salary or half of the total income?

Also when I paper-file the state MFS return, Turbotax asks me (in the instructions) to attach a copy of my federal return. Which federal return should I attached with the MFS state return, the MFJ federal return (that I actually filed) or the associated mock MFS federal return (that I did not file)?

[ramyagirgis]

Yes, I live in WA, I don't have to file a state return.
Yes, my wife had no income in WA in 2017 and her income in CA was before we got married.
The only income is our wages and the 1099's interest from the banks. We are using standard deduction.
I am using desktop version.
So my final question would be, my WA income should not be reported in my wife's CA state return right? Since we got married after she moved from CA and stopped working there. The reason I am asking is when you do the state return Turbo tax if you need to do adjustment (addition or subtraction) due to the community property rules.

[TerriL]

Hi again.  After doing some research at ftb.ca.gov (Franchise Tax Board, CA), I'm sorry to say that I realized that I am just not positive about whether you have to claim YOUR income in CA or not.  Both WA and CA are community property states and here is why I am not sure if you would have community property adjustments in CA or not:  On the one hand, income of either person, prior to marriage, is and can be for the purpose of filing, separate income.  (So that means you only had 6 weeks or so of communal income in WA).  On the other hand, CA says "If the spouse earning the CA source income is domiciled in a community property state, community income will be split equally between spouses."

I'm linking a page here to FTB tax help.  It's about a 40 min wait if you call by phone or a 4 min wait if you Live chat.  After reading, I would feel better if you ask the "horse", if you know what I mean!
<a rel="nofollow" target="_blank" href="https://www.ftb.ca.gov/aboutFTB/Timeframes/?WT.mc_id=Contact_Slab_Processing_Times#contact">https://...>
I hope that link is hyperlinked; can't seem to make it hot.  If not, if you go to ftb.ca.gov and click on Contact us, you will be routed to the same user friendly page.

Finally, there's a TurboTax page that sort of walks you through how to make the program help you with CP adjustments, etc---if there are any.  I'm going to add that link here, too.
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/1901162-married-filing-separately-in-community-property-states">ht...>
Darn, it doesn't seem to hyperlink either.  Sorry about that.....don't know why that's happening.

I'm sorry that I don't think I was that much help after all---simply because I'm not sure of one thing. Because both CA and WA are CP states, I recommend that you verify with CA.  The other thing you could do is follow the steps in the TT info (#1901162) and see if that walks you through to check and see if there are adjustments, based on your particular circumstances and dates.  I have filed MFJ Federal, coupled with MFS for CA (spouse lived in NV at the time).  Almost identical circumstances to yours, in that both CA and NV are CP states AND NV has no state income tax.  The largest income was the NV one and we filed none of that on the CA MFS return.  The CA return was accepted as correct and that was over 3 years ago!  I used to do taxes for a living and only rarely came upon CP adjustments.

I'm curious what you find out.  If you have a minute, I would love to hear back from you.  I still think my original suggestion is correct for you....but you will find out!  Good Luck.
Terri

[TerriL]

Yay, the links came through as hypers!

[ramyagirgis]

Thanks a lot, I will follow the links and see what I will be able to get from them.
It is very tricky but I would your original recommendation will still apply. We have in fact 6 weeks of "community property" in 2017 but she was not living in CA those 6 weeks (she was already moved here to WA), so how can it be counted as a CP adjustment in CA since the income was acquired while neither of us was in CA.
I also refer also to this statement in 540NR instructions "If the spouse earning the CA source income is domiciled in a community property state, community income will be split equally between spouses". So the spouse earning CA source income was not domiciled in WA. She was domiciled in WA after the CA source income has stopped.

[ramyagirgis]

About TT info (#1901162), I have already gone through it on the SW as well (the desktop version asked about this while I was doing the MFS) but the problem here is that I can not figure out if I need to report CP or not, it does not ask you some particular questions like date of move, date of marriage etc .. that might help figure out if CP is needed or not. Instead it just ask you "Do you have any CP adjustments to report for 2017", and this is the question I am trying to answer 😄

[ramyagirgis]

Hi, I called FTB and I think I was even more confused, she says that both the federal and state filing status should be the same for our case. Since I have already filed the federal as MFJ, the state should also be MFJ. The representative said finally it will be the same amount because I should use Schedule CA (540NR) and we will only pay for the income made in CA. I went back to the MFJ return and add CA but this did not happen, somehow I ended up paying taxes in CA. Instead of getting a refund, I now owe money. Can you help me?

[TerriL]

Okay, that's crazy (the FTB gal not knowing).  First of all, you do not have to file MFJ ever, if you don't want to, and you absolutely can file using different statuses for Federal and State.  (It can be complicated and both must use the same deduction status, ie. itemized or standard---all which you know!)
I checked out the 540NR form and it sucks! Unless you create a mock federal return using the 1040NR, just so you can do the 540NR, I don't think calculations will be in your favor or correct.  

If it was me, I would file the MFS return in CA.  I think you're going to be fine.  According to ftb: "Separate property (income) is all property owned separately by husband or wife BEFORE marriage."  She quit her job, moved to WA and THEN got married.  So there ya go!  The way I see it, CA has no claim on your income---because you weren't married when she lived in CA, and therefore, YOU did not earn any income there.  (I know there's the Dec 31st rule....if you marry on 12/31 you're considered married the whole year BUT I say the "separate income rule before marriage" trumps that.)

I don't want to totally advise you and then be wrong----but I say there is a gray area here IN your favor and, as you discovered, even FTB agent didn't know.  Here's more support for MFS for your wife:  CA allows you to file MFS if 3 criteria are met:  1.  You filed a joint Federal return 2. One spouse was a non-resident of one state  3.  The non-resident spouse had no income in that state (that would be you).  Bam, you meet all 3!

Again, I would do what we originally talked about:  create a mock MFS fed return, just to create the MFS CA return.  Make sure you attach a copy of your real MFJ fed return to the CA return.  I can't recall but I hope it asks for date you were married on return---then it's an obvious conclusion about your separate incomes and residencies.   I think we're right on this.  (Btw, if your wife ever did have to claim your income on a MFS return, she would only have to claim 1/2 of it!)

Best of luck and file with confidence!  If you want to reach out to me---outside of TT---here's my email address:  [email address removed]

Terri

[ramyagirgis]

Thanks so much for your support, all your points makes a lot of sense.
I would go ahead and file MFS for CA. For the MFJ federal, unfortunately it does not ask about the marriage date.
One last thing funny thing about the 540NR form, when I tried to add California MFJ return and use Schedule CA (540NR) the way the FTB suggested, not only I owe money but TT also estimated a penalty for under payment (looks like because CA is considering our both incomes, the CA tax withheld from my wife was not enough, which is crazy because at that time we were not even married).

[ramyagirgis]

One final Update 🙂 It again talked with FTB, this time via chat, here is the answer I got:
"1/2 the community income which consists of wages earned during the marriage, would be reported. If that applies. But from what you stated it seems you were not married while she may have had California sourced income or was a California resident. If that is the case, there would be no community income. she would just file the 540NR as Married Filing Separate (MFS), with her own income."
This also confirms what you were also saying, thanks a lot Terri for the help.

[TerriL]

You're welcome.  I just knew your income would not come into play in CA, as it preceded your marriage.  So MFS 540NR makes sense, although I thought she could just file the 540....since she was a resident WHEN she earned the money.  I'm not real clear on all the rules surrounding 540 vs 540NR (there are a lot of them)!  Good luck!

[TerriL · Accepted solution]

Hi:  I think I may be able to help.  I'm assuming your wife had no income in WA in 2017---(which would only come into play on your Federal return because WA has no state income tax!)  Community property rules differ from state to state (and can be tricky---depending on what type of income and the itemizing vs. standard deduction rules) but none of this would seem to come into play in 2017 for you.  As I understand, you weren't married until October and income prior to that is not community income. 

So here's what I would do.  Complete your Federal return as MFJ, with your combined incomes for 2017.  Now go back into TurboTax and complete a "mock" MFS return for your wife and her CA income---which then will walk you through the CA return. (I hope you have the CD/Desktop version---I'm not a fan of the online version!) You didn't say, but I'm assuming you live in WA---which means you don't need to file a state return.

When you send in your wife's CA return, you attach your MFJ return to it because that is the actual return you are filing with the IRS.

Hope that helps in some small way.  Good luck!

[ramyagirgis]

Thanks so much, this is helpful.