Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
thanksforyourhelp
Returning Member

When Does Community Property Income Start?

I am a current CA resident and moving to WA permanently this month. I'm planning to marry a CA resident in December 2021. My understanding is that since CA and WA are both community property states, half of my income after marriage will be taxed by CA. Can anyone clarify if the community income, 50% of which is taxed by CA, will only start accruing after the date of marriage in December? Or is it retroactively applied to the entire calendar year?

 

Thanks in advance.

5 Replies
macuser_22
Level 15

When Does Community Property Income Start?

Community income is any income earned in a community property while married.

 

 

However, you only allocate community income when filing separately which is the worse way to file.  If you file jointly, as you should, then community income is irrelevant - all income from both spouses goes on the same tax return.

 

You misunderstand community property.

When filing seperartely in a community property state then 1/2 of each spouses community income is claimed on the other spouses income.    Therefore 1/2 of your community income goes on your tax return and 1/2 on your spouses tax return and visa-versa so all the income is taxed only once, but half on each spouses tax return.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
thanksforyourhelp
Returning Member

When Does Community Property Income Start?

Let's say that my spouse and I file separately for the year and we get married on 12/1/21. Up to 12/1/21 I make $110K and she makes $0. From 12/1/21 - 12/31/21, I make $10K and she makes $0K.

 

So if I'm a WA resident and she's a CA resident, she would only report half of $10K ($5K) on her separate tax filing, correct? Since community income only starts after the date of marriage?

macuser_22
Level 15

When Does Community Property Income Start?


@thanksforyourhelp wrote:

Let's say that my spouse and I file separately for the year and we get married on 12/1/21. Up to 12/1/21 I make $110K and she makes $0. From 12/1/21 - 12/31/21, I make $10K and she makes $0K.

 

So if I'm a WA resident and she's a CA resident, she would only report half of $10K ($5K) on her separate tax filing, correct? Since community income only starts after the date of marriage?


Right, but you would probably end up with a much larger tax bill than if you filed joint since you only get half of the deductions and she has no deduction or tax since she will not have enough income to even file.   A spouse does not have to have any income to file joint and the standard deduction will be twice as much as separate. 

 

Try it both ways - jointly will probably be less tax.

 

If you file MFS (Married Filing Separately) keep in mind that there are several limitations to MFS.  Married filing Jointly is usually the better way to file.
 
A few of those limitations are: (see IRS Pub 17 for the full list

https://www.irs.gov/pub/irs-pdf/p17.pdf page 21

1. Your tax rate generally is higher than on a joint return.
2. Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return.
3. You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. For more information about these expenses, the credit, and the exclusion, see chapter 32.
4. You cannot take the earned income credit.
5. You cannot take the exclusion or credit for adoption expenses in most cases.
6. You cannot take the education credits (the American opportunity credit and lifetime learning credit) or the deduction for student loan interest.
7. You cannot exclude any interest income from qualified U.S. savings bonds you used for higher education expenses.
8. If you lived with your spouse at any time during the tax year:
a. You cannot claim the credit for the elderly or the disabled, and
b. You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.
9. The following credits and deductions are reduced at income levels half those for a joint return:
a. The child tax credit,
b. The retirement savings contributions credit,
10. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).
11. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.
12. You cannot contribute to an IRA if your MAGI if more then $10,000 and you lived with yiru spouse at anytime during the year.
13. If you live in a community property state you must allocate community income between both spouses..
-
- Community property states.   If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered separate income or community income for income tax purposes. See Publication 555. http://www.irs.gov/publications/p555/index.html

 
See this TurboTax article for help with this.
https://ttlc.intuit.com/questions/1894449-married-filing-jointly-vs-married-filing-separately

https://ttlc.intuit.com/questions/1901162-married-filing-separately-in-community-property-states

 

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
thanksforyourhelp
Returning Member

When Does Community Property Income Start?

Yep your advice makes a lot of sense. I guess I'm just having trouble figuring how the MFJ filings would work in our case.

 

So for Federal, we'll file MFJ and I'll report all my income for the year (7 months from CA, 5 months from WA).

Then for CA, we'll file a 540NR (MFJ) with the following calculation:

 

Assuming I made $10K per month and moved from CA to WA on August 1st and got married on December 1st, I would have a total AGI of $120K, and a CA AGI of $75K (7 months of $10K while in CA, and $5K from the 1 month of community income). And then I would only pay CA state taxes on $75K of income, and 0 state taxes (WA) on the remaining $45K of income.

 

Am I approaching this correctly?

macuser_22
Level 15

When Does Community Property Income Start?

Correct.   You only pay CA tax on the income earned in CA.     That is the same reguardless of what your filing status is.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Dynamic AdsDynamic Ads
Privacy Settings
v