Complicated taxes between states

[angelv17]

Trying to do my daughters taxes and it is stressing me out.

She lived in Louisiana with husband.

They separated in Feb 2021, but still lived together in Louisiana until 5/29/21.

Job 1. She had a Louisiana job Jan - May.  LA taxes withheld. (Spouse had LA job all year and is still a LA resident.  They are still married and filing separately)

Job 2. She moved from Louisiana to MD temporarily 5/30/21 - 9/16/21.  Had a MD job from July - Mid Sept.  MD taxes withheld.

Job 3. She moved from MD to PA on 9/17/21.  Had a different MD job from Mid Sept - Dec.  MD Wages only, no MD state taxes withheld; PA State & Local taxes withheld. MD & PA are reciprocal states.

These state taxes are driving me crazy and I'm not sure that Turbo Tax can handle this scenario.

1. Is Job 2 in MD considered to be income in Louisiana since she was only temporarily in MD 5/30 - 9/16?

2. What jobs are considered Louisiana Income for splitting the community property between them?  Job 1 or Job 1 & Job 2?

3. Is Job 2 to be taxed in Louisiana & MD?  If I add job 2 (MD) Income to Louisiana taxes in TT it does not ask for income taxed in another state to get the credit on Louisiana taxes.  I guess that is because she is considered nonresident/part-year resident already in LA since she moved on 5/29?

4. Then TT asks for Non MD income and Non PA income which depends on the answers to the questions above.

Ugh!!! Can someone please help?

[AmyC · Accepted solution]

1,2, & 3 depend on domicile. My guess would be she left LA with no intention of returning - since separating. Only LA income would be taxable to LA and considered community property. The MD return may be a nonresident since she passed through so quickly. Then you could file a part year LA and part year PA.

However, we need to get this right, no guessing! Let's start here  Publication 555 (03/2020), Community Property - Internal Revenue Service and work through this. When she left LA and moved to MD, did she know it was temporary or was she intending to move on to PA or to return to LA? If she left LA with the intent to not return, she would have left LA and the community property behind. Did she get a MD or PA license or register her car or voting? Anything to look like LA was in the past?

The pub states:

If you move into or out of a community property state during the year, you may or may not have community income.

Factors considered in determining domicile include:

• Where you pay state income tax,

• Where you vote,

• Location of property you own,

• Your citizenship,

• Length of residence, and

• Business and social ties to the community.

To help determine, see What is my state residency status? Once you have determined if LA was indeed left behind when she left, then you can determine which jobs were LA resident. 

• She may have been a LA resident but not domiciled there for the MD job. If so, MD income goes to LA income.
• IF LA was not a place to return, then MD income would not be in the LA return.

Now that you have domicile figured out, we can look at Pub 555 which states: Community income.

Generally, community income is income from:

• Community property;

• Salaries, wages, and other pay received for the services performed by you, your spouse (or your registered domestic partner), or both during your marriage (or registered domestic partnership) while domiciled in a community property state; and

• Real estate that is treated as community property under the laws of the state where the property is located.

[angelv17]

Thank you so very much!!!!  Yes, I have looked through Pub 555.

Yes, her intention was leaving LA to find permanent residency in the northeast.  She was only in Maryland from 5/30 - 9/16 in an AirBnb and then moved 9/17 to PA to a leased Apartment.  I guess it is possible if she had found an apt in MD she would have stayed there, but the time she actually lived in MD was temporary.

Unfortunately, she has not changed her DL or car registration yet from LA.  We just transferred the car title to her with an act of donation and she will be taking care of all of that (DL & Registration) within the next two weeks.

Based on this and from what I understand from the information you provided ....

LA Job 1 would be LA Income and split community property 50/50.  She will be Nonresident/Part-Year resident for LA.  Louisiana job Jan - May (5 months 2021).  LA taxes withheld. 

MD Job 2 would be MD Income as a Nonresident (all other income is NON MD income).  Moved from Louisiana to MD temporarily 5/30/21 - 9/16/21 (3.5 months 2021) with a MD job from July - Mid Sept.  MD taxes withheld.  This would NOT be considered LA Community Property Income since intent was to leave LA and not come back. 

MD Job 3 would be PA Income Part-Year resident (all other income is NON PA income). Moved from MD to PA on 9/17/21 - present (3.5 months 2021).  Had a different MD job from Mid Sept - Dec.  MD Wages only, no MD state taxes withheld; PA State & Local taxes withheld. MD & PA are reciprocal states.

Am I understanding that correct or is additional information still needed?

She did cash in some bonds that were in her name and issued while she was in LA (from her grandfather several years ago, before marriage) and cashed them at a bank in PA.  My understanding is that the Interest on those bonds is community property to be split 50/50.  Wasn't sure if it mattered where they were cashed or not to determine community property.  I tried searching to see if I could find something on that, but couldn't find anything specific other than the interest being community property. 

The bond interest adjusts the Fed Income, but it is not taxed at the state level, so that seems to cause an issue as 1/2 of the bond interest is included in the Community Property Subtraction adjustment which the Net adjustment carries over to the states.

So if you have any insight on that also, that would be greatly appreciated.

[AmyC]

The bonds were owned prior to the marriage and cashed in PA so they are not LA related. As for moving, it isn't just license and car, it is creating a social network, settling in as if you plan to stay. MD allows you to file a part-year return on Form 502, she could have stayed, she just didn't. That would be easiest

So, 3 part year returns will make your life much easier.