NC State filling status when one spouse is resident of other state

[atlasthere]

Me and my wife are planning to submit federal and state tax withholding forms for 2024 and here's our situation. I will be a resident of NC for the entire 2024. My spouse will be a resident of WA for the entire 2024. No kids.

We usually pay our federal and state returns as MFJ (my spouse was a part-year resident of NC in 2023). We want to continue filing federal taxes as MFJ, but I am unsure if that's the right choice.

Here are a couple of questions I have.

1. Can I file my NC tax return as MFJ when my spouse is a nonresident of NC (not even a part-year resident)? If yes, would we have to report my spouse's WA income on the NC return? Which standard deduction would apply in this situation?

2. Can I file my NC return as MFS considering our federal return is MFJ? Is it worth going down this path?

3. We both have W2 incomes and separate other typical income types (1099-INT, 1099-DIV). However, we have a joint savings account (in which we both contribute). For this account, 1099-INT will be issued to me/I am the primary account holder. Does this income count towards NC source of income for my spouse? Does this require us to file MFJ for my NC state return?

4. Given our situation, should we consider filling MFS for federal and state returns? Or any other recommendations?

Thanks in advance. 🙂

[DMarkM1 · Accepted solution]

Yes, assuming your spouse is not living in NC and therefore has established a new resident state you can still file as Married Filing Jointly (MFJ) at the federal level.  You can also file the same status (MFJ) in NC.  However, for NC if one spouse is non-resident with no NC source income then the NC resident can file as Married Filing Separately (MFS).  Here is the NC reference.      

1. Can I file my NC tax return as MFJ when my spouse is a nonresident of NC (not even a part-year resident)? Yes  

If yes, would we have to report my spouse's WA income on the NC return? Yes, but you would be able to allocate to NC only that income that belongs to NC to arrive at percentage used to determine NC taxable income.  

Which standard deduction would apply in this situation? Married Filing Joint ($25,500).  For a MFJ return NC uses all income and subtracts the joint standard deduction and multiplies that result by the percentage of NC income/total income.  

2. Can I file my NC return as MFS considering our federal return is MFJ? Yes. 

 Is it worth going down this path?  Possibly.  You need to figure both ways to see which works out better.  Typically filing a separate return will yield a lower state tax.  

3. We both have W2 incomes and separate other typical income types (1099-INT, 1099-DIV). However, we have a joint savings account (in which we both contribute). For this account, 1099-INT will be issued to me/I am the primary account holder. Does this income count towards NC source of income for my spouse? No.  Her part of the interest was earned as a non-resident of NC.  

Does this require us to file MFJ for my NC state return? No.  When you complete your Federal "mock" MFS return in the 1099-INT topic you can select the option to change the taxable amount of the interest to only include your portion. Then only that amount of interest on that account will transfer to NC for your separate return.  All of the interest will be reported on your actual/filed federal joint return.  

4. Given our situation, should we consider filling MFS for federal and state returns? Yes.  You should figure your NC taxes filing jointly and allocating versus filing a MFS return with only your income.  

Or any other recommendations?  Yes.  Purchase TurboTax desktop version.  There you can create and file a MFJ federal return to produce a NC MFJ return with allocations plus create a "mock" federal MFS return with only your income to produce a NC MFS return for comparison.  

If the NC MFJ return is the lower tax for you, then you can e-file that one with your federal MFJ.  However, if the NC MFS return is better, you will have to print/mail that one since you will not file the "mock" federal MFS return.  

Here is a link with more information on the process.

[atlasthere]

Hi @DMarkM1 ,

Thank you so much for your elaborative response, I much appreciate it.

Based on your input about how NC calculates taxable income for my situation, I did a quick comparison between MFJ and MFS for NC state tax, turns out MFS would give me more tax break with my numbers. But again, numbers could change. So I will keep my options open and compare MFJ and MFS as you suggested.

I have a few more follow questions:-

1. While allocating/deciding our individual share of 1099-INT income for our joint account, do we need to draft any paperwork for our federal and state returns showing these calculations? I read some comments about the primary account holder issuing 1099-INT to another joint account holder. In our case, both of us contribute to the joint account. Would this process differ based on our federal/state return filing status?

2. Based on your inputs, I am also considering MFS status for federal returns to keep things simple. However, I won't know the favorable filing status until next year when I have the final numbers. In this case, how should we select our filing status for federal and state tax withholding? I want to avoid the scenario of filing Form 2210 (Underpayment of estimated taxes) next year, and if possible also not to pay too much in tax withholdings. Any recommendations on the filling status for our W-4 and NC-4?

3. My spouse is NRA and I am a US resident, we already chose to file jointly in 2022 for the 2021 tax return by following the required IRS process. My understanding is that we both can choose to file MFS for federal taxes and report worldwide income while also taking the MFS standard deduction. Is this correct? Do we need to mention the scenario anywhere while filing the return?

Again, thank you in advance. 🙂

[AmyC · Accepted solution]

1. No you don't need to issue a form to a spouse. Just make a note of how you came up with the division and stick it in your tax folder in case someone asks.

2. You can choose to withhold whatever amount makes you comfortable and you can change it as often as you like. Your employer can't do anything but change your withholdings. Some people take less out around Christmas or summer vacation. You are right to keep an eye on your withholdings and make sure you take enough out. Please see another post of mine to help you with determining what is best for you. 

3. That is correct. No need to mention it. Here are the rules, Nonresident Alien Spouse | Internal Revenue Service

[atlasthere]

@AmyC

Thank you so much for helping me out.

Also, your post about withholding is informative, thanks for sharing that. I understood that I could change my W-4 whenever needed and how to come up with an extra withholding amount. However, I wonder if there is a safer filing status to mention on my W-4 when I am not sure what filing status I will opt for the federal return next year. The primary aim is to avoid penalties for estimated tax underpayment.

[AmyC]

The safest way to file is always single so that the most is taken out. You can  check your earnings and the calculators for your various filing statuses and compare to see where you are landing each quarter..

[atlasthere]

@AmyC 

Thanks for your input, this is helpful. Can I file single in W-4 even when I am married, or did you mean MFS?

[AmyC]

Yes, you can claim any status you want on a w4 since it is for your return.