Changing filing status from MFJ to MFS

[FormerMayor]

My wife and I filed our 2019 taxes using filing status married filing jointly (MFJ). We made estimated tax payments for 2020.

Now we're filing our 2020 taxes and want to use filing status married filing separately (MFS) instead, and then allocate our 2020 estimated tax payments between my wife and myself (in a way that we have agreed).

When we file our 2020 tax forms electronically, how do we explain to the IRS how my wife and I have agreed to divide the 2020 estimated tax payments so that they'll know that a portion of those estimated tax payments should be applied to her tax liability?

[npierson7]

You don't need to add any explanation regarding your estimate taxes paid. Just allocate the payments based on your agreement and enter the information into your returns. 

[FormerMayor]

What we found was that the solution was more complex than we had originally considered.  In our case, changing our filing status from MFJ in 2019 to MFS in 2020 required additional calculations (done by hand) on both of our separate 2020 tax returns. This information does not appear to be calculated automatically by TurboTax.

The “About” instructions that TurboTax provides for Line 8 on Form 2210 helped us through this process --> “If you are not filing a joint return for 2020, but filed a joint return for 2019, figure the tax both you and your spouse would have paid if you had filed separate returns for 2019. Then multiply the joint tax liability by your separate tax liability divided by the sum of both spouses' separate tax liabilities. [TurboTax, Form 2210, “About Line 8.”] To complete this task, we then had to update the Federal Carryover Worksheet with this 2019 tax liability information on each of our MFS 2020 tax returns.

Following those instructions we were then able to successfully complete Form 2210; that resolved our issue. (As it turned out we had no tax penalty.)

[bobbiedobbs]

My wife and I agreed as well on how to reallocate as well. Questions:

Is this simply a matter of entering the agreed allocations of joint estimated tax payments into the fields for estimated tax on each return? Will there be an "error" if for instance the credit elect from the joint return during the prior year is not allocated entirely to the primary SSN?

The IRS forms and instructions say to make notations regarding agreed allocation on the 1040/1040SR. I don't see how this can be done in Turbo Tax, particularly given the instructions to write-in the other party's SSN.

Finally - and the greatest worry - even if it goes through on Turbo Tax, the IRS when it matches payments shown on the return and payments shown under the primary SSN in their computer systems, will show a mismatch and reject both returns. Our state (PA) has a form you can file to request reallocation for current year estimated taxes, if filing separately but made jointly during the year. I don't see a way out re the federal.

All of this is important this year given the new rules on exclusion of tax on unemployment income. I won't even get into that conundum - re married filing separately! The new law allows each married person to exclude tax on up to 10,200 on unemployment income, if the FILER  has under $15,000 adjusted gross income. "Household" is used here but the regs and IRS form itself makes no distinction in filing status.

I'm really only interested in the answer to the question on estimated tax - how to do in Turbo Tax, how to get through once e-filed re payment mismatch. .

[FormerMayor]

What you would do:

1. On Form 1040, Line 26, list your total estimated tax payments.  This amount is transferred from the Tax Payments Worksheet. Enter your agreed allocations and dates of joint estimated tax payments into the fields on the Tax Payments Worksheet for both federal and state taxes (and local, if you have that).  The total federal estimated tax payments will then transfer to Form 1040 (Line 26).
2. On Form 1040, Line 38, list your estimated tax penalty (if any).  This amount is transferred from Form 2210.  On Form 2210 Line 8, you’ll need to follow the TurboTax guidance for “About Line 8.” The IRS provides additional guidance in IRS Publication 505 (in the middle of page 23, “2019 joint return and 2020 separate returns”).
3. With that calculated share of the tax return entered on Line 6 of Page 2 of the Federal Carryover Worksheet (you’ll need to follow the TurboTax guidance for “About Line 6.”), the number is then multiplied by 1.1 and transferred to Form 2210, Line 8.
4. For the spouse that was not the primary SSN in the previous year, you’ll likely be checking Box “E” in Part II on Form 2210, which signals the IRS to look at the previous year’s joint tax return for the tax payments. The other (primary) party’s SSN will be on the front page of the Form 1040 under “Spouse’s Social Security Number.” No need to make that notation elsewhere.

In our case, we only had estimated tax payments to consider; we did not have any credit elected from the joint return during the prior year, so we didn’t encounter nor look into that issue. Also, we didn’t use TurboTax’s Step-by-Step instructions.  So, if this laborious process is actually covered in their program (I don’t know whether it is), then you might let it walk you through the process instead.

Regarding the possible mismatch of payments and rejection of both forms, I can only tell you that ours appears to have gone through OK.  (Worst case is that they’ll send you a letter asking for explanation.)

As for making notations on the form, that works well if taxes are done on paper but, isn’t practical when filing electronically.

There was a recent decision on the unemployment income issue.  They say if you haven’t filed yet to wait. They’ve extended the filing deadline to May 17th to give time to work this.

Good luck.

[bobbiedobbs]

Thanks for taking the time to write out these detailed instructions. This is the most thorough response I've seen here or elsewhere. Hopefully others can benefit from this as well. That said, I am not sure whether I need to do Form 2210 to determine spousal allocations of joint estimated tax payments, as both me and my wife figure out estimated tax based on our individually projected income/deductions, and as our refund in the what-if worksheet was fairly balanced when viewed as married filing separate. On the other hand we may NEED to do 2210 just to get the Turbo Tax program to allocate according to our wishes - which is my basic problem.  I would think the credit-elect can be allocated in the same way as the quarterly payments - I guess I will find out! 

The observation about the IRS figuring the unemployment tax rebate for you would seem to apply to returns that have already been filed - although this could be picked up if for some reason it is not picked up during our contemporaneous filing. My understanding is that Turbo Tax will deal with this in the Federal Review portion of the return (so that would require use of the STEP-by-Step interview for this alone, anyway. 

Not pleased about Congress changing the rules in the middle of the filing season, although the benefits may outstrip the inconvenience re filing.  In any case, I appreciate the detailed instructions!!! Interesting, my home state of PA has a form that can be e-filed that seamlessly reallocates joint payments if filing married filing separate, based merely on preference (one can do the equivalent of F2210 as well).

Will let you know how it goes. I'm actually still thinking whether married separate is a good idea for one reason alone- any benefit from the larger unemployment tax rebate (via use of the $150,000 ceiling for each of us separately) would be substantially eclipsed by the stiff penalty Medicare would apply in 2022 (which is based on tax year 2020 income). Married separate gets slammed once you get to a certain level of modified Adjusted Gross Income, for the purpose of determining annual payments.