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.

[junsolicited]

@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

[mistercampbell]

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!

[tbxavier]

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

[tbxavier]

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

[junsolicited]

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.

[Charbroil]

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.

[AmyC]

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

[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.

[AmyC]

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.

[Robert Prentice]

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

[estwalke]

I tried subscribing for the LIVE expert when I encountered questions about how to calculate some of the numbers and place them in the correct boxes. However, when I was connected with the expert, I was advised that I was not a candidate for this service because I was filing MFS and had been living with my husband (apparently only people filing MFS who lived apart for the year are qualified to receive the LIVE expert service). So, they were unable to walk me through the screens or provide further assistance. I did begin with contacting the standard help line, and they felt the situation was too complex for them to assist me. I will acknowledge that everyone tried their best, but TurboTax was unable to provide the assistance needed even at the highest service tier. 

[selfreporter]

Do we still have to split the each income in 8958 50:50 now that TT introduces the "other income" to adjust the community property differences?

In 8958, with TT's approach, in the line 12, there will be a row named "Other income". The amount will be the community property income adjustment and one spouse is positive and another spouse is negative.

Say in a case: A made 1000, B made 3000

Is this legitimate that we report:

8958 for A and B:

line 1 Wage
W2 - A:1000
W2 - B: 3000
line 12 Other items
Other income: A: 1000, B: -1000
(So total income of A and B each is still 2000)

Or we have to report:

8958 for A and B:
line 1 Wage
W2 - A:500 - B:500
W2 - A:1500 - B:1500
line 12 Other items
Other income: A: 0, B: 0
(In this case the other income is 0, which does not match A or B's individual filing of "SCHEDULE 1, Additional Income and Adjustments to Income" as TT adjust the community property income with line z, as Positive / Negative Community Property Adjust)

[DaveF1006]

Yes, you still need to allocate all items 50/50 even with the introduction of "other income". You would report the $4000 combined wages 50/50, meaning $2000 for yourself and $2000 for your spouse. Other income simply means other income that is not specifically categorized on form 8958 such as Foreign Income.