Community property state adjustments for MFS with nonresident spouse

[charlie1256]

I am now a resident for tax purposes (F1 after 5 years) and my wife just came to the US in 2022 (F2 status). We decided to file separately, such that she only needs to file 8843 for federal return as a nonresident (due to the 5 years exempt for students) and no need to file state tax if I understand correctly, since she did not have any income earned.

The question appears on my end when I use TurboTax to prepare the state tax forms. It asks me about the community property state adjustments (e.g., in California). I understand that in such states incomes are supposed to be divided 50/50, but since my wife will not need to file a state return, should I put 0 to adjustments here? 

[KrisD15 · Accepted solution]

Yes, there would be no adjustments unless you need to share unearned income.

Unearned income, such as interest, is only split if the source (such as the stock) was purchased after you were married and purchased with community funds. 

It sounds like you would have no adjustments needed. 

According to the IRS:

“If you are a U.S. citizen or resident alien and you choose to treat your nonresident alien spouse as a U.S. resident for tax purposes and you are domiciled in a community property state or country, use the community property rules. You must file a joint return for the year you make the choice. You can file separate returns in later years. For details on making this choice, see Pub. 519, U.S. Tax Guide for Aliens. 

If you are a U.S. citizen or resident alien and don't choose to treat your nonresident alien spouse as a U.S. resident for tax purposes, treat your community income as explained next…”

“Earned income.

 Treat earned income that isn't trade or business or partnership income as the income of the spouse who performed the services to earn the income. Earned income is wages, salaries, professional fees, and other pay for personal services.

Earned income doesn't include amounts paid by a corporation that are a distribution of earnings and profits rather than a reasonable allowance for personal services rendered.

Trade or business income.

 Treat income and related deductions from a trade or business that isn't a partnership as those of the spouse carrying on the trade or business.

Partnership income or loss.

 Treat income or loss from a trade or business carried on by a partnership as the income or loss of the spouse who is the partner.

Separate property income.

 Treat income from the separate property of one spouse as the income of that spouse.

Social security benefits.

 Treat social security and equivalent railroad retirement benefits as the income of the spouse who receives the benefits.

Other income. 

Treat all other community income, such as dividends, interest, rents, royalties, or gains, as provided under your state's community property law.”

Pub 555