Regarding married filing separately, do you enter half of the combined total community property wages on the w2 section of the 1040 or only enter your own wages on 1040?

[MarilynG1]

@BARRacine  Go back to your original 1099-G entry and Edit to enter the Split amount.  You are correct that the software does not do this for you automatically, unfortunately.  

Entries on Form 8958 do not 'flow' anywhere in the program.

Click this link for more info Splitting Income on Form 8958. 

[BARRacine]

Ok so I have to split it at 1099-G entry, and the 8958 is just informational to the IRS on how it was split and telling them to go look at the partner's return.

I presume I'll have to manually enter all W-2 and other 1099's this way also!!!    Boo hoo.

But thank you for clearing up.  This general concept has been a real frustration.  Take care.

[junsolicited]

@jsltwl I am having the same exact issues filing MFS in a community property state (California).  I am still unclear on the response provided by @TurboTaxCarol on how to answer the TurboTax questions.  I also contacted TurboTax support and they were unable to assist.

Matter of fact, my CPA filed my 2018 return using the EXACT method you provided in your example.   We received an IRS CP2000 notice because the IRS was confused how the numbers reported on the 1040 don't match the tax forms.  Examples:

-Wages from Employer W-2 doesn't match 1040 Line 1 (Wages, salaries, tips, etc.)

-Tax Withheld from Employer W-2 doesn't match 1040 Line 16 (Federal income tax withheld from Forms W-2 and 1099)

-1040-INT does not match Line 2b (Taxable Interest)

My CPA responded back to the IRS clarifying the MFS in a community property state rules and all was good.  He advised that the IRS doesn't know how to process these MFS in community property states and every now then, he'll get this notice and have to provide an explanation.  I reported this issue to the IRS Taxpayer Advocate service and they are currently reviewing it.

That being said, did you (or anybody else) figure out how to populate TurboTax?  If not, I'll look into other tax software as I don't find TurboTax intuitive for our situation.  I tried to just edit the forms directly but as one person mentioned some fields are locked so it's not possible.

[BARRacine]

I split community property w-2 and 1099 income and withholding 50% on each return.  Form 8958 gets populated with those amounts, all under the column for the one you are doing the tax return for, but you must manually add the other 50% into the other column for the other spouse/partner, so that the total column comes up with the real totals. 

For any separate income, like pensions, social security, or anything else separate, you enter the whole amount, but you must show it on the form 8958 with 100% allocation to the one spouse/partner, and 0 tot he other.

In other words, based on what I saw my ex-CPA do, all incomes must be shown on 8958 so that you are disclosing everything.

Also, my ex-CPA used to attach a copy of my domestic partner certificate, so I did that also.

[rybird88]

Trying to clarify all answers in this thread... and what I've read... 

So, MFS in community property state... I have a W2 and my wife has a W2... 

IRS says I must "report" half of all community income on my return and my wife must do the same on her return. Which I take to mean this...

-- On my 1040 return I enter my W2 but only 50% of box 1 and 50% of federal withholding

-- I ALSO enter my Wife's W2 on MY return but only 50% as I did for my W2. 

My wife does the same on her 1040 return... entering BOTH my W2 and her W2 (each at 50% of actual box 1 amount). 

Then we each fill out the 8958 and the IRS reconciles the total income between the two 1040 returns. 

Is this correct? 

[KrisD15]

Not quite. 

You are reading a thread for a Registered Domestic Partnership which is a bit different. They cannot file a Married Filing Separately federal return, but they still need to adjust their income. 

If you are married, you will enter both separate federal returns into each TurboTax program, enter each taxpayer's tax documents into the respective return as they are reported, no need to adjust the tax documents themselves. Next, use the adjustments worksheet.

The adjustment worksheet generates Form 8958 which is included with your tax return.

The program will reallocate the income, deductions, and tax from the adjustment screens which you will use to make the adjustments listed on Form 8958.

This is only necessary when a married couple living in a community property state wishes to file separate returns. 

[Edited 03/17/2021 | 4:26 PM PST]

How to file Separately in a Community property State

@rybird88

[rybird88]

Thanks Kris, 

Although if you go back to page one of the thread... it's a "community property" thread that many people have thrown in their particular issues. 

Yes, I understand the basic idea as you explained how it is done. I've read the IRS pubs, etc. I'm required to "report" 50% of my spouse's income and she is to do the same with mine. Also, I've looked through all the TT screens on my 1040. It's confusing and Turbo Tax gives ZERO guidance on exactly what you are supposed to enter.  

My question is specifically how and what do you enter into Turbo tax on each spouse's return in order to "report" it correctly and have TT work it out correctly. 

You say to "enter each tax payers documents". Do you mean enter each payer's documents into ONLY their own 1040? Or both spouse's documents on both 1040's. This is where it is confusing and I've yet to see a clear answer. But this is my question... exactly which documents and on which returns. Hopefully you know the answer. 

This is how I understand what should be done (per what I understand of IRS pub 555)....

For my 1040:

-- I enter my W2 but only 50% of box 1 and 50% of federal withholding

-- I ALSO enter my Wife's W2 on MY return but only 50% as I did for my W2. 

My wife's 1040:

-- She enters her W2 (50% of box 1, etc.)

-- She also enters MY W2 at 50%. 

Same as above for 1099's, etc. 

Then in Turbo Tax "community property" section you manually distribute income and adjust things which will transfer to form 8958 to tell the IRS how ALL the income was allocated.

TT does not "automatically" calculate anything. It will populate W2 income entered and 1099 data, but using TT for community property is confusing because there is no guidance specific to MFS and community property when entering data in the "Income" section. So looking for specific guidance on how TT works and if my outline of how to complete 1040 for this situation is correct according to what the IRS is looking for on a MFS return. 

Thanks for your help!! 

[KrisD15]

Yes, we welcome all users to add to the thread, just wanted to point it out in case you were not aware. 

No, you each enter your own tax forms on your own tax returns. The IRS program will want to match the numbers to what they have copies of on file. 

In TurboTax you can type   community property worksheet   and then click the "jump to ..."  link in order to make the entries for Form 8958. 

NEXT, you will make the adjustments into the TurboTax program. You can find this section after you wrap up income and before you file the return. When you make these adjustments, the program will adjust the refund and or tax. The tax forms themselves (such as your W-2) will not be altered. 

@rybird88

[rybird88]

Okay, the main reason for my confusion is that the IRS states that each spouse must "report" 50% of community income. All "reporting" is done on the 1040. The 8958 is informational only as I understand it. It tells the IRS how you calculated the amounts you "reported" on your 1040.

But what I understand you to say is... when MFS in community property state each spouse fills out their own 1040 basically as if they were single. They enter their own W2's, 1099's, etc. with the exact amounts on those forms. I agree it makes sense that the IRS is wanting to see that the numbers match.

So, each spouse fills out their own 1040 as indicated above and then in Turbo Tax each spouse uses the "community property" section to add W2 and other income from the other spouse, allocate each spouse's income 50/50 in the columns, and make adjustments accordingly which populates to the 8958.

Then Turbo Tax will make an income adjustment to your actual 1040?

This is what I understand you are saying. Is that correct? 

If so, can you tell me... where/how on the 1040 is this adjustment to income (calculated on the 8958) reported? Which line and/or schedule? 

Thanks!

[KrisD15]

There are 3 steps. 

Enter the tax documents

Enter the adjustments onto the worksheet which populates the 8958 (Informational only, does not generate changes) 

Enter the same adjustments in the allocation screens for each income/tax/deduction.

(you may need to continue through the program to get to this screen or click continue under "Other Tax Situations") This will make the changes on the 1040.

The tax documents will be attached to the return as they are reported, no changes are made to them. 

The numbers on the 1040 are adjusted on each applicable line, not as one single adjustment. 

For example, if you subtract income, it will be a negative number on 1040 line 8 "Other Income" 

Adjustments to tax withholding is on 1040 line 25c. 

Every line on your 1040 that reports an adjustment should have a corresponding number on your spouses 1040. 

[rybird88]

Thanks Kris, 

Okay, so my wife and I have completed 2 MFS returns. We each have completed the "community property" section and all that info is on form 8958 which each of us has filled out. 

The net effect is as you'd expect... My "taxable income" is essentially identical to my wife's taxable income. 

However, Turbo is showing that I owe about 25% more tax than my wife. We are both in the same tax bracket, but TT is showing an "effective tax rate" lower for my wife than for me. 

Any idea why?

The only difference between us and our incomes is that I have about 2X the amount of W2 income. We each have K-1 income (but it is 50/50 -- we each have a 50% share of a partnership). 

We each reported our separate W2's (using exact numbers on the W2) on our separate returns then used form 8958 to list all income sources (W2, K-1, 1099) split it all 50/50. 

Then we each entered "adjustments" per the community property module. The net adjustments for each are the same.

So... everything seems like it is filled out correctly, everything split 50/50 and documented correctly... but for some reason that is not at all clear is why my tax owed is 25% more than my spouse's?? I can't find any evidence reviewing, the return, all forms and worksheets.

Any ideas?  

[WendyN2]

If your W2 income is that much higher than your wife's total W2 income, then, yes it is entirely possible that your effective rate is that much greater as the more you make, the more your liability becomes. You can calculate this yourself if that makes you feel better by using the IRS Tax Tables Tool on their web site...

[rybird88]

Hi Wendy, 

Thanks. I'm assuming your answer isn't simply "the more you make the more you are taxed" which I think everyone knows. So, I'm just verifying that the question was understood. We are filing MFS. We live in a community property state so we must split all income 50/50. 

So, my return and my wife's return have the same Net income, the same "taxable income". We have a few income sources. Not just W2 income. We each have an equal share in a partnership (K-1 income). It's equal so we each earn the same amount from this partnership. 

We also get the Foreign earned income deduction on our W2 income so that complicates things a bit, but in the end, the amount on line 15 (taxable income) on each of our 1040's is the same. 

The only real difference is that the W2 portion of my income is 2X the W2 portion of my wife's income. 

We do not have federal withholding on our paychecks. We pay quarterly tax estimates. I'm just trying to figure out if W2 income is taxed first, or differently than other income sources when the IRS is figuring the tax rate/effective tax rate. Because looking at tables it would seem that all income is lumped together and then you get taxed at whatever bracket you income falls into. 

But if that were the case, then my effective tax rate should be the same as my wife's since we have the same net "taxable income". But that is not what Turbo is showing us, so there must be some details in the tax code about "types" of income, etc. And our W2's are the only thing different between us so.... 

So, would the difference in effective tax rate boil down to FICA taxes on the W2's? Or something else specific to the W2's? 

Thanks!

[WendyN2]

Hello, I do understand what your situation is - but thank you for clarifying again - it never hurts to do so!!!

Filing taxes in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin) as married filing separately (MFS) can be complicated.

Certain states have laws about community property defining how they expect MFS couples to share, or allocate, income. TurboTax has allocation screens and a worksheet to assist you in entering any adjustments your community property state may require when filing separately.

For more information, refer to IRS Publication 555 Community Property.

If you're using TurboTax Online, we recommend that you transfer your return to the TurboTax CD/Desktop version. You'll save time by entering less information.

Begin by completing a MFS federal tax return for you and your spouse, as you'll need the amounts for different income categories, tax amounts, and all tax payments for each of you. If one of you plans to itemize deductions, the other person must itemize as well. Otherwise, you'll both have to use the Standard Deduction.

You may not be able to e-file, in which case TurboTax will guide you through the steps to print and mail your return.

Entering income adjustments for a community property state

Complete the community property worksheet

Finish your tax returns

[rybird88]

Yes, we did enter our own W2's on each of our separate MFS returns. 

However, if we are doing it correctly (MFS in community property state) then our separate tax returns should match since all income is 50/50 split. They would not match if one or both of us had "separate non-community income" as defined by the states. 

So, after each of us entered all our own W2's and personal tax docs into our own tax return in Turbo our numbers were different. But then we each used the "community property" section in Turbo to allocate all income 50/50 for form 8958. And each of us entered addition and subtraction "adjustments" to income per the Turbo community property section and the results of the 8958 allocation of community income 50/50. 

After doing this our taxable income is the same on my return and my wife's return. Which makes sense... 50/50 split and we do not have any non-community income or assets. 

So, that is why I thought there must be something with how our W2's were being taxed in order for the Turbo to calculate that I owed a lot more tax than my wife. We made estimated tax payments (did not have federal withholding on our W2 incomes) and then split 50/50 those estimated tax payments on each return. 

All I can think of is that the difference must be FICA taxes on the W2 income which would be much more on for me than for my wife since I had double the W2 income that she did. 

Could this be the reason?