How do I figure what the community property income adjustment is? We are married filing separately, her income was 111,661 and mine was 76,812.

Community property states usually require that your income be split 50-50.  Having said that, each state has nuances in their own laws that can make the calculations complicated.  

If you have a situation where all of our income is under community property law, then each of you will be claiming approximately 94,000 of income (1/2 of 188,000, which is your total income).  Your tax withholdings would also be split 50/50 between the two of you.

That is a general guide; you may need to look at specific Wisconsin law.  And this FAQ can give you aditional information to assist you:  https://ttlc.intuit.com/replies/3301943

would he write in addition adjustment or subtraction or both?

When you are doing the Community Property allocation you will take the TOTAL for the community property for each category then divide it in half.  For the amount attributed to each spouse, you add or subtract to make up the difference of the half.  For example:

 

If Bob made $800 and Mary made $200 the total wages are $1000.  One half is income to each spouse- which is $500.

 

Because Bob made more, he would have a subtraction to get his $800 to $500.  Mary would have an addition of $300 to get her to $500.

So in the image above, Bob would only add a subtraction of  $300 in the Community Property Subtraction Adjustment field right and leave the other field blank?

 

 

And in the second image, I would do the same thing with tax (most likely a subtraction adjustment for Bob) withholding right? Another issue I noticed is that when I enter a positive value in the Tax Withholding - Subtraction Adjustment federal, state, and local amount fields, it says "maximum value is 0". I was wondering why this happens. Am i supposed to put a negative value? e.g. -300

I am having the same problem with the second image/section you are referring to.

Filing taxes in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin) as married filing separately (MFS) can be complicated.

 

Certain states have laws about community property defining how they expect MFS couples to share, or allocate, income. TurboTax has allocation screens and a worksheet to assist you in entering any adjustments your community property state may require when filing separately.

 

For more information, refer to IRS Publication 555 Community Property.

 

If you're using TurboTax Online, we recommend that you transfer your return to the TurboTax CD/Desktop version. You'll save time by entering less information.

Begin by completing a MFS federal tax return for you and your spouse, as you'll need the amounts for different income categories, tax amounts, and all tax payments for each of you. If one of you plans to itemize deductions, the other person must itemize as well. Otherwise, you'll both have to use the Standard Deduction.

 

You may not be able to e-file, in which case TurboTax will guide you through the steps to print and mail your return.

 

Entering income adjustments for a community property state

 

Complete the community property worksheet

 

If you need additional assistance you may want to go to a LIVE Expert.  There is a fee for this service but they will walk you through the screens.

I think we need a clear cut example of filing MFS in a community property.  I called TurboTax support a couple years ago on this but they couldn't provide a straight answer so Intuit refunded the software.  I'm giving this one more shot but the provided TurboTax article is still not clear:  https://ttlc.intuit.com/community/married/help/married-filing-separately-in-community-property-states/00/26030#sh-collapse1

 

I know how to file MFS in a community property state on paper but I can't figure out how to answer TurboTax's software questions such that it populates the underlying forms correctly.

 

Question 1:  Entering W2 information in the Wages and Income section.  When Spouse 1 enters W2 information, you cannot just enter a 50/50 Split for Box 1 (Wages, tips, other comp.) and Box 2 (Federal income tax withheld) and then input the values for the remaining boxes as is.  If you do, TurboTax will notice the numbers don't jive. How exactly do we input W2 information in this section?

 

Question 2:  If you are doing the 50/50 Split in the Wages and Income section of TurboTax, then what is the need for the Community Property Adjustments Section?

 

Question 3:  Does Spouse 1 also input Spouse 2's W2 into Spouse 1's tax return?

It depends. Let's answer the questions in reverse order.

1. You do not need to enter the spouse's W2 income into your return. 
2. Reason you are doing 50/50 splits because this would is what is required in community property states. If this requirement didn't exist, then you be able to make any split you like. Look at it like what is mine is mine and what is your is yours without any regard to a 50/50 split. Not allowed to do that in a community property state.
3. As far as determining income, I have always prepared returns by combining totals of all W2's and then enter the 50/50 split in Turbo Tax. The information entered on your W2.
4. For an example, your wages will appear in the community property wages screen. You will then enter your spouses total wages in the screen. Same is true for all other types of income and deductions. When all the reporting is done, Turbo Tax will determine the 50/50 split. 
5. Note some of the income such as dividends and interest may be reported in your return but your spouse might not have any.  If this is the case, you will enter 0 in your spouse's entry
6. To get to this section, type in 8958 in the search bar and then when it says Jump to 8958, this will bring you to the section to begin reporting this. Your spouse will do the same thing in theirs.

Correct me if I'm wrong but here is a simple example of how to populate TurboTax based on your advice. I've listed the TurboTax sections, fields and values to input for those fields:

 

Spouse 1 W2 from Company A
-Box 1 (Wages, tips, other comp.) = $60,000
-Box 2 (Federal income tax withheld) = $15,000

 

Spouse 2 W2 from Company B
-Box 1 (Wages, tips, other comp.) = $40,000
-Box 2 (Federal income tax witheld) = $7,000

 

Spouse 1's Tax Return
-Wages and Income
--Input Spouse 1's W2 Tax Return exactly as presented in W2. NO splitting here. Do NOT input Spouse 2's W2.

 

Now we're done inputting W2s. Next is the Community Property Income (which you called "Jump to 8958")

 

-Community Property Income Adjustments:
---Community Property Subtraction Adjustment = $10,000 

 

-Community Property - Wages:
--Company A:  You=$30,000. Partner/Spouse=$30,000. Total Wages=$60,000
--Company B: You=$20,000. Partner/Spouse=$20,000. Total Wages=$40,000

 

-Tax Withholding Adjustments:
--Tax Withholding - Subtraction Adjustment
---Federal Amount= -$7,500

 

-Enter Your Spouse's Community Income:
--Taxes Withheld: You=$7,500. Spouse=$7,500. Totals=$15,000

 

Then, if you switch to Forms view in TurboTax you will see the 1040 lines populated as follows:
Line 1 = $60,000
Line 8 = $-10,000
Line 25a = $15,000
Line 25c = $-7,500

 

Important notes on this method:
1040 Line 1 and Line 25 does not take into account Spouse 2's W2. Spouse 2's W2 info is only recorded in 8958 and it does not make changes to the overall return.

 

Understand this is a different method to arrive at the same final amount owed/refunded to taxpayer. TurboTax makes income and withholding adjustments on Lines 8 and 25c. Instead, my CPA records $50,000 on Line 1 ($60,000+$40,000=$100,000, $100,000/2=$50,000) and $11,000 ($15,000+$7,000=$22,000 $22,000/2=$11,000) on Line 25a.

While we can't manually check your calculations here on this forum, you can be sure that they are done correctly by using Form 8958 to determine the allocation of tax amounts between married filing separate spouses or registered domestic partners (RDPs) with community property rights.  TurboTax will guide you through the process.  This form is intended for individuals who: 1. Are subject to community property laws, and 2. File separate federal income tax returns.

 

Here is how to enter the adjustments for a community property state:

First, use your community property state rules to determine what adjustments you expect to enter in TurboTax. Often one return has an addition to income and withholding, while the other will have a reduction (subtraction) to income and withholding.

1. Sign in to TurboTax and open or continue your return. 
2. Search for community property and select the Jump to link.
3. On the Community Property Income screen, select Yes and follow the instructions to enter any income adjustments.

Complete the community property worksheet

After you've told us your income adjustments, you'll have to fill out the community property worksheet. The worksheet shows how the income on this tax return compares with the other taxpayer's return.

Your community property worksheet will appear right after you complete your income adjustments.

If you can't find the worksheet:

1. Sign in to TurboTax and open or continue your return. 
2. Search for community property worksheet and select the Jump to link.

We’ve added clear instructions directly on the worksheet to guide you through filling it out correctly.

Once you've determined how to split both your combined income and tax withholding between you and your spouse, continue with your state tax return (if applicable).

 

You may not be able to e-file, in which case TurboTax will guide you through the steps to print and mail your return.

@junsolicited

I've read the TurboTax article and it does not provide the detailed guidance which I need to answer my above question.  Was hoping to get confirmation on my simple example.  Thought I'd give TurboTax another shot this year but no dice.  I'll just do it on paper again.

@junsolicited  It's complicated to an extent because each state has their own community property laws, which means that there can be variances as to what is or what is not community property, so it is impossible to comment to that specific level.

 

Having said that, your calculations in your example look correct.  Nevertheless, it may be that TurboTax calculates/reports the income in a slightly different way as the CPA, and neither is "wrong".  However, I do suspect that you forgot to input your spouse's withholdings, because either you should be showing 22,000 in Box 25a and -11000 in box 25c or 15000 in Box 25a (what was actually withheld from your income) and -4000 in Box 25c (from Form 8958 adjustment after both spouses are factored in).  So check your entries to make sure you got this in there correctly.

No and that highlights how TT differs from how my CPA does the taxes. If you only input Spouse 1's W2 into the Wages and Income section, then TurboTax only puts Spouse 1's income and withholdings on Line 1 and Line 25a. Nothing you do in the Community Property Income Adjustments section of TT will change that.   TurboTax makes the adjustments in Line 8 and 25c whereas my CPA doesn't use those lines.  He actually makes the adjustments in Line 1 and Line 25a, respectively.

 

To rephrase, the changes TurboTax makes to 8958 have no bearing on the W2.
-On Spouse 1's return, TurboTax only does a 50/50 split of Spouse 1's W2 on the 1040.

-On Spouse 2's return, TurboTax only does a 50/50 split of Spouse 2's W2 on the 1040.

My CPA inputs BOTH W2s in each return.

I have the same dilemma and have been searching to find an answer all day. I like the example that you used and it seems as if the cpa is saying that your example is correct besides the missing information.  Does it really matter where the adjustments are made as long as they are made and it's correct? I wish turbotax would have a walk-through so that people can see examples of how to do these things. 

 

Also, I am confused how you got $7500 for the subtraction adjustment below? As i thought you would add both federal with-holdings from both spouse ($11,000 + $7000) and then divide by 2. But you just split the $15,000 in half. What about the other withholding of $7000? Do you just split that in half too?

-Tax Withholding Adjustments:
--Tax Withholding - Subtraction Adjustment
---Federal Amount= -$7,500

 

 

@tbxavier, first I'm glad to know that it's not just me.  Based on how (I believe) TT wants you to complete this form, there is no missing information.  What's key here is that on Spouse 1's return, you are ONLY splitting Spouse 1's W2.  So on the 1040, TT only shows splitting of Spouse 1's W2.  However, Spouse 1's 8958 will contain Spouse 2's W2 info but TT DOES not carry over this info into the 1040.  So Spouse 1's 8958 will have the following:

• 1 Wages (each employer)
  • Company A:  A=$60,000.  B=$30,000. C=$30,000.
  • Company B:  A=$40,000.  B=$20,000. C=$20,000.
• 11 Taxes Withheld
  • Spouse 1:  A=$15,000.  B=$7,500. C=$7,500.
  • Spouse 2:  A=$7,000.  B=$3,500. C=$3,500

Again, Spouse 2's info from 8958 does NOT carry over into the 1040.  Confusing!  It might just be used as a reference for the IRS when reviewing Spouse 2's tax return.

 

The only sections in TT that update the 8958 AND 1040 are below:

• Wages and Income
• Community Property Income Adjustments
• Tax Withholding Adjustments

The other community property sections update the 8958 but DO NOT update the 1040:

• Community Property - Wages
• Community Property - Other Miscellaneous Items
• Enter Your Spouse's Community Income

This might not be an exhaustive list of sections but that's what I've found.

 

Recap:

• TT Method
  • 1040 splits Spouse 1's W2 only on Spouse 1's return.
  • 1040 splits Spouse 2's W2 only on Spouse 2's return.
  • 1040 on Spouse 1's return will show $30,000 income and $7,500 withholding for each.
  • 1040 on Spouse 2's return will show $20,000 income and $3,500 withholding for each.
  • Adjustments recorded on Lines 8 and 25C of 1040
  • 8948 - Shows both Spouse 1 and Spouse 2's W2 info
• My CPAs Method
  • 1040 splits Spouse 1 and Spouse 2's COMBINED income on Spouse 1's return.
  • 1040 splits Spouse 1 and Spouse 2's COMBINED income on Spouse 2's return.
  • 1040 on Spouse 1's return will show $50,000 income and $11,000 withholding for each.
  • 1040 on Spouse 2's return will show $50,000 income and $11,000 withholding for each.
  • Adjustments recorded on Lines 1 and 8 of 1040
  • 8948 - Shows both Spouse 1 and Spouse 2's W2 info

I'll be honest, I stopped bothering with all of this. These days my wife and I just hand over what ever document is required by an H&R Block tax consultant, and they take care of all of it! Guaranteed peace of mind!

Yes lol, i just came to that conclusion. I actually made an appointment already. Turbo tax is not suited to handle MFS in community states tax payers. Software just can't handle it. Another problem i encountered also this morning is that for capital gains rollover you can't adjust the amount. Rollovers for MFS is $1500 so if the amount is more than $1500 (as in my case), TT won't allow you to change it. And when i ask for help the guy was trying to convince me to file jointly. Lots of flaws i notice. I could give them a lot of feedback on how to fix their system, but people have been complaining for years and nothing have changed. Oh well back to my accountant

Thanks for your reply i appreciate it. I am over TT. Other flaws in the system as i have describe in another response. I understand the concept and how to do it, TT platform just not well suited for MFS in community state in my opinion. They have no way of changing the amount of capital loss rollovers. So if $2000 is able to roll over from 2019 to 2020. They roll over the entire amount and you can't change it. When married filing separately, i can only roll over $1500 to 2020 and the other $500 would roll over to 2021. TT doesn't do that. Even though they roll over the entire $2000, to 2020 tax return there was not movement in the tax refund. It still says $0. That was the final straw for me. Back to my cpa

 

 

Yea.  This is super frustrating.  I gave TT multiple chances.  Tried to file MFS for 2019 Tax Year and reported the issue to support team.  Nothing came out of it.  Tried TT this year in hopes they would change how MFS is handled.  The TT experts point me to this article but it's useless.  The guidance doesn't contain the necessary details nor are there examples.  Would be nice if TT monitored these forums for these types of issues and got them escalated.

 

On a related note, my CPA got a notice from the IRS about how they filed my MFS (as explained above).  Line 1 on 1040 didn't match my W2.  Well DUH!!  It's not going to match.  My CPA said this is common and happens to his clients.  He just provides an official response back to clear up the confusion and then the IRS accepts the return.  I got tired of this so I filed Issue 44174 with the IRS Tax Advocate Service.  Just got word back today that this issue is being escalated as it appears that the IRS needs education on how to properly process these returns.

Funny. I have never done MFS and been using TurboTax for joint returns for years.

 

I was getting "Cannot be greater than zero" errors on the withholding adjustments page which I contacted support for. During chat, I thought to ask another question... If I meet the California definition for separated, aren't my federal and state tax withholdings my own separate property? Why am I even on this page! She pointed me to this discussion and IRS Pub 555. (Yeah read that already).

 

So frustrating. The user experience of entering this information on TurboTax online is just awful. I need to find a CPA.

 

Has anyone tried to download the desktop version to see if MFS is any better? Not sure if I want to spend the $$$ this year just to find that it also sucks.

 

 

If you are married, you only have married filing joint and married filing separately. Since you are still married, it is still community property. 

 

Married/RDP filing separately | FTB.ca.gov

California is a community property state. When filing a separate return, each spouse/RDP reports the following: One-half of the community income ...

 

The advantage to the desktop is that you can see the forms and data source to see how the numbers come together on the forms. If you are both filing with us, the desktop is cheaper than 2 individual returns.

 

@Charbroil

@AmyC Sorry maybe you didn't consider the part about how I am separated from my spouse? What you cited only applies to married couples / RDP who live together and are not separated. So Married/RDP filing separately | FTB.ca.gov does not apply in my case. If the couple is separated all year, and the couple meets the four IRS "living apart" conditions, an individual spouses earned income is separate property. Also, if you do NOT meet ALL four conditions, you must follow the community property laws of the state you live. Which in California, all earned income is separate property starting the date of separation (July 2020 for me).

 

IRS Publication 504 (2021), Divorced or Separated Individuals reads:

If you and your spouse are separated but don’t meet the four conditions discussed earlier under Spouses living apart all year, you must treat your income

according to the laws of your state

. In some states, income earned after separation but before a decree of divorce continues to be community income. In other states, it is separate income.

The Four "Spouses living apart all year" conditions:

1. You and your spouse lived apart all year. --

   I cohabitated with my spouse a couple months in 2022.--

2. You and your spouse didn’t file a joint return for a tax year beginning or ending in the calendar year.

3. You and/or your spouse had earned income for the calendar year that is community income. --

   By California's definition, neither me nor my spouse had community earned income because we were separated. SEE CALIFORNIA FAMILY CODE SECTION 771.--

4. You and your spouse haven’t transferred, directly or indirectly, any of the earned income in (3) between yourselves before the end of the year. Don’t take into account transfers satisfying child support obligations or transfers of very small amounts or value.

Section 771 of the California Family Code reads:

(a) The earnings and accumulations of a spouse and the minor children living with, or in the custody of, the spouse, 

after the date of separation

of the spouses, are the

separate property

of the spouse.

 

July 2020, nope, not expecting the whole year as legally separated. Thanks for the information! In the personal section, you have legally separated for your marital status. In CA, marital status is legally married and did not live with spouse during 2021 There are no adjustments to make. If you have a child, you can even have head of household as a filing status for both federal and state.

It's totally unacceptable that Turbotax won't do communal property calculations for us for each state situation! That's then reason we purchase software instead of using a tax guy! ヽ(ಠ_ಠ)ノ