Problem with Form 8958 and Community Property Income Adjustments

Hi,

I live in CA and am using Married Filing Separately status, taking the standard deduction. (I know joint filing is a better tax scenario for most people, but I must use MFS for other reasons).

I have read IRS Pub 555, and the TurboTax article "Married Filing Separately in Community Property States." I have also researched the internet exhaustively, spoken to the IRS on the phone, and asked advice from a friend who is an accountant.

Background:  I have no wages and no W-2, and my husband has one W-2 with wages of $50,000 (rounded for the purposes of this explanation). I have $100 of  interest income on 1099-INT forms, and he has no interest income. The federal government requires that when using MFS filing status in CA, spouses divide and report their income under community property rules; however, there are no lines on the federal tax return to indicate this division. The advice I have received is for each spouse to report his/her own income on line 7 (for wages) and 8a (for interest), and then make an adjustment on line 21 to divide income equally between spouses. In my case, I would report my interest income of $100 on line 8a, and on line 21 I should have a positive community property adjustment of $25,000 (half of my husband's income) and a negative community property adjustment of $50 (subtracting half of my own income). TurboTax did not explain this at all, and it has taken many hours of research to get to the point where I understand how our returns should look and which lines of the 1040 the community property adjustments should appear on.

The problem with TurboTax occurs in the Step-by-Step Community Property Worksheet. Here is a walkthrough:

Under Other Tax Situations, Click Done with Other
Select Yes, I need to report partner/spouse's community property income

This brings me to the worksheet: the following screens will generate form 8958 (Allocation of Tax Amounts Between Certain Individuals in Community Property States), which must be filed with the 1040. The screens require you to list all sources of community property income, i.e. each spouse's wages and interest income

Community Property - Wages
TurboTax displays an allocation screen and this notice: "If you make any changes to the taxpayer column, these changes will not be reflected in your return. You will need to return to the W-2 section of TurboTax to make the necessary changes." This sounds like TurboTax expects me to list my half of community wages in the W-2 section (i.e. on line 7 of the 1040), but that won't work because (a) I don't have a W-2 and (b) if I did have wages, the amount on line 7 should match my own W-2, not my share of our community property wages and (c) line 7 is not the correct place to make these changes. So I continue with the worksheet but do not make changes to the W-2 section of my return. Actually, TurboTax will not let me add wages in the W-2 section without a W-2, so I couldn't do what it asks even if I wanted to.

Community Property - Interest
Again, TurboTax tells me "If you make any changes to the taxpayer column, these changes will not be reflected in your return. You will need to return to the interest section of TurboTax to make the necessary changes." So now TurboTax is recommending  that I list on 1040 line 8a my share of the community property interest, which is half of the amount shown on my 1099-INT forms. I doubt the program will actually let me do that, since it takes its information directly from the 1099-INTs that I have entered.

Community Property - Other Miscellaneous Items -- I did not have any of these, and left this screen blank, but as you will see, TurboTax INCORRECTLY automatically adds an amount here later on the process, after the community property adjustment screen has been completed. I will get back to this later.

Enter your Spouse's Community Income (taxable refunds, capital gains, etc) - I did not have any of these

Community Property Income Adjustments (Enter your community property income adjustments below)
--Community Property Addition Adjustment (this is where you add half of your spouse's total income to your return)
--Community Property Subtraction Adjustment (this is where you subtract half of your own total income from your return and allocate it to your spouse)
This section will result a positive or negative figure being entered on line 21, with the words "see line 21 statement," and generates a form entitled Form 1040 - Line 21 - Other Income Statement. On the Other Income Statement, Line 18a will show "positive community property adjustment" and Line 18b will show "negative community property adjustment." AFTER ENTERING THESE ADJUSTMENTS, TURBOTAX PLACES AN ENTRY ON LINE 12 OF FORM 8958 (Allocation of Tax Amounts Between Certain Individuals in Community Property States) LABELED "OTHER INCOME." In other words, it reports again on Form 8958, Line 12 the same income that was already reported on Lines 1 and 2. Line 12 is supposed to be for other sources of income such as Social Security, Unemployment, etc. TurboTax does not seem to know that the "other income" (from line 21) is a community property adjustment and should not be listed on Form 8958 as additional income that needs to be allocated.

Now, if I return to the community property worksheets, under "Community Property - Other Miscellaneous Items," I see a new entry pre-filled with the description "Other Income." This is the same figure that appears on Form 8958, Line 12. TurboTax will not let me delete this; the only way to get rid of it is to delete the Community Property Addition Adjustment that I previously entered. Obviously that should not be removed, since it is how the IRS knows (on 1040, line 21) the amount of community property income I am claiming.

So the problem is: TurboTax thinks that my "Positive Community Property Adjustment" on 1040, Line 21  is some kind of "Other Income," and it is asking me to allocate this "Other Income" and listing it is a source of income on my Form 8958. And the program will not let me delete it.

So my 1040 cannot be filed unless I either white out the "Other Income" entry on Form 8958 when I submit my paper return, or download a Form 8958 from the IRS and submit that instead of the one the TurboTax filled out for me.

I have to say that the whole Community Property Worksheet is a waste of time, especially as it says ""If you make any changes to the taxpayer column, these changes will not be reflected in your return. You will need to return to the W-2 section of TurboTax to make the necessary changes." That is directing people list their community property allocations on the wrong part of the 1040. The IRS has an automated matching system, and if the amount on line 7 does not match your own W-2s, you will get a letter from the IRS asking for an explanation.

How has anyone else dealt with the Community Property Worksheet? Did you successfully make community property adjustments to your 1040, Line 7 (the W-2 section)? Or did you ignore that advice and use Line 21? If you used Line 21, how did you handle the "Other Income" entry generated by TurboTax on your Form 8958 Line 12?

Form 8958 was just added to TurboTax yesterday (it was previously unavailable). So I expect a lot of people will run into this situation over the coming weeks.


  • This is rediculous.  I am using Turbo Tax because my husband and I are on Social Security but filing seperate for other reasons and we don't have a lot of extras. This was supposed to be easier.  I live in Idaho and have never experienced a Community Property state problem before because we moved here in 2010 and were not married until 2012. We bought a house in 2012 together, so none of this was relevant. HELP how does one muddle through all this garble?  I don't understand anything of what the lady above obviously understands better then I do and she's having trouble.
  • Well, as I understand it, the only income you have that is considered separate income is your social security benefits. All the rest would be community income, so each of you would declare half of the community income (e.g., interest, dividends, capital gains) on the appropriate lines of your 1040 and then show on Form 8958 the other half in your partner's column. Of course, I'm no expert, just muddling through like most everyone else, but I don't think it's that complicated unless you had taxes withheld.
  • Well, I don't thik that is absolutely true about "all the rest would be community income" ... I really think the answer is "IT DEPENDS" ...  this is how I've been treating it for the last 4 years - it depends.  The guildelines (IRS PUB 555), while trying to be a guide, are vague at best. e.g., My RDP and I EACH own a rental property that we individually paid for (verifiable) and take all the income separately. We do NOT split that income on FORM 8958. Also, we each have individual Div & Int investment income that we do NOT split. We had these accounts BEFORE our RDP'ing.  Neither is huge $$ in the scheme of things - and if the IRS decides to Audit us, we will do our best to explain it ...  But I think this whole thing is so messed up that until we can truly file MARRIED FILING JOINT with the FED (DOMA reversed), the IRS is not very likely to try to recoup such minimal $$ ... at least that's my hope.  YMMV
  • Cody, this is what I read on the Web: "In Idaho, Louisiana, Wisconsin, and Texas, income generated by separate property is still considered community income. So in these states, the only income that will be classified as separate income are distributions from an IRA, Social Security benefits and alimony. "
  • Ah, I see ... I'm filing from CA ....   Are you positive there are no exceptions? e.g., if you owned the property BEFORE RDPing ?
  • From what I understand, pre RDP property and its earnings remain separate in CA
  • Cody, I'm not positive of anything! I just read this on the Web. However, the woman is in a traditional marriage and in Idaho, so what applies in her situation won't necessarily apply to you and me.
  • Agreed - both SF Peter & Puppychow.. Also, I *think* if you can prove that an investment is purchased Soley from 1 person in a RDP from their own money (separate bnk acct), that investment can remain separate. At least that's my story & I'm sticking to it when/if I sit down with the IRS. Also, income from a 401K is considered separate as far as I can tell - just like Social Security would be.  YMMV - good luck everyone, this is a mess.
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I called support to try to resolve this problem, case ID: [Personal Information Removed].  After a 35 minute wait, I spoke to a woman who had no idea what I was talking about, repeatedly put me on hold to try to figure it out, and finally said she was transferring me to the tax advisor line.  After another 45 minute wait to speak to someone (poorly handled, guys), I got on the phone with a much more helpful tax advisor named David.  After a total of 2 hours on the phone, David's now looking into it; I'll update this page with what I find out.

While on hold, I've discovered this possibility:
We've established that the amount entered as "Community Property Addition/Subtraction Adjustment" on the Community Property Income Adjustments screen is getting listed by TurboTax as "Other income" on the Community Property - Other Miscellaneous Items page and resultingly on Form 8958, line 12.  

For the "You" column on the Other Miscellaneous Items page, this number cannot be changed.  However, the column for "Partner/Spouse" can be changed to show a negative number.  If one spouse has "Other income" (i.e. the community property adjustment itself) of +$2000, and the other spouse has -$2000, then the "Total income/deduction" column will read $0.  On the other spouse's 1040, the "You" column would be -$2000 and the other spouse would be +$2000, again equaling $0. This would appear to be a possible work-around that accurately reports both spouses' deductions.

Given that, here's the succinct question we're facing:
Should the community property adjustment itself be listed as an item on Form 8958, Line 12, with the positive and negative adjustments for the two spouses totaling zero? If so, TurboTax needs to fix the Form 8958 coding so that the description accurately reflects that it is not just "Other income" but is instead accurately described as "Community property adjustment". If not, TurboTax needs to fix the Form 8958 coding so that the amount claimed as a community property adjustment is excluded from the "Other income" used to fill Form 8958, Line 12--even though it is "Other income" for the purpose of the 1040, Line 21.

As I said, I'll update when I hear back from David.  Hopefully that will save others the 2 hour wait time on the phone.
  • Tax advisor David called back and confirmed his understanding that what I have described above is the correct way to fill in these numbers: Form 8958, Line 12 will include an item described as "Other income" that shows the positive and negative community property income adjustments, totaling to $0. Form 1040, line 21, will then include the same positive or negative amount, and the tax obligation will calculate properly.

    I'm not 100% convinced that this is how IRS intended 8958 line 12 to be used, and not particularly happy that the line isn't more descriptively filled by TurboTax. But, it seems to get the job done. Hope all this detail helps!
  • This does not seem correct to me at all. "Other income" is where income that is not categorized elsewhere on 8958 would be listed. Allocations from community property would not make sense to include here sense that is what you are showing in each of the columns - how much is being allocated to each spouse.
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I'm a tax attorney in California with several domestic partner clients. The problem is not the fault of TurboTax or Intuit. The problem is that the IRS has bungled its whole approach to "community income on separate returns" and rushed Form 8958 into production without adequate testing or explanation. Their instructions regarding the way income is split for self-employment tax are wrong as a matter of law. Good luck!
  • do we have to file as a RDP?
  • My understanding is YES, if you are in fact a RDP in a Community Property State ...  but I am not a CPA, so YMMV.  :-)
  • The IRS has definitely been behind the game in providing appropriate guidance for these situations. Even the IRS' tax payer advocate has pointed out the erroneous advice regarding the self-employment tax issue:
    http://www.taxpayeradvocate.irs.gov/userfiles/file/Full-Report/Status-Updates-Federal-Tax-Questions-Continue-to-Trouble-Domestic-Partners-and-Same-Sex-Spouses.pdf

    However for returns with simple W-2 and interest income form 8958 should work fine. Unfortunately TurboTax isn't allowing users to enter the data correctly. Right now there's no way to even put a spouse's income source description onto form 8958.
  • Do I understand that we are now to report half of our partner's income on our Federal form and that income impacts the amount we have to pay - plus the reverse of my partner reporting half of my income and her tax is adjusted by income.    Isn't this double taxation?
  • No- because you'll be subtracting half your income (to credit to your spouse)
  • The precise split is governed by your state's community property laws. It doesn't necessarily have to be a 50/50 split.

    It can have an impact on your bottom line tax rate, but the income isn't being taxed twice - if you're splitting 50/50 you only report half of your income and the other half goes on your spouse's return, then the opposite for your spouse. So if you made $50K and your spouse made $40K you'd each report half that - $25K+$20K, so $45K total on each return.
  • thank you...that makes more sense.   I noticed the form shows income but do you have to split deductions?
  • the only thing you Split re: W-2 stuff is the Income & FED Income Taxes ...  not any of the other boxes, at least so far THIS year..  Looks like some changes are coming in 2013 for reporting of Health Care monies next year.  disclaimer: Not a CPA .. all in this mess together
  • Last 2 years we split deductions as well. Basically everything.
  • Did I read somewhere that we can't efile this year because of the new form or will Turbo Tax get a needed update so the data records correctly?
  • @puppychow - Really? vis a Spreadsheet I assume?  Which deductions, specifically? Like medicare taxes?  I've never done that - and amended all the way back to 2009 ....  I guess time will tell if we ever get auditted .. but this is so screwed up I doubt the IRS even knows what's going on.  :-)
  • Yes I included an explanatory note with each return. By deductions I meant home loan interest, etc. not the other tax items, I only split fed and state taxes. My partners 2010 return did produce a letter from IRS wanting $8k in taxes. I sent a copy of the exact explanation letter that I sent with the original return, and they accepted that and closed the file.
  • Yea, that's what I meant -- Nothing on the W-2 except Income & Fed Taxes gets split ... then you split your other Joint property (real estate taxes, mortgage interest, etc. in a spreadsheet.  Butr with FORM 8958 this year, the deduction split 'process' changed in TTax.  Frankly, I liked doing the spreadsheet method - and never heard a peep from the IRS ..  yet .. :-(
  • I saw a reasonable guide to splitting deduction when MFS (or Single for same-sex marriage) instead of jointly in community property states here:
    http://taxes.about.com/od/Deductions/a/community-property-deductions.htm

    Looks like generally if the deduction is related to community property (i.e., mortgage interest an a house that's not separate property) then you split it.
  • I'm an RDP in CA and my partner and I took a distribution from an annuity that is taxable but that is reported under my SSN. I claimed half the amount as a Subtraction from income and he claimed 1/2 as an addition. On my Form 1040  Line 16a and b I put in the whole amount (total), since I figured the IRS would expect that to match the 1099-R I received. But then I saw that Turbo-Tax put the total amount on Form 8958 under "Pensions" and allocated that to me, which is not correct, since half should go to me and 1/2 to my RDP. So I decided to delete the Addition/Subtraction to income on each of our forms and just claim 1/2 the distribution amount for each of us on Line 7 of Form 8958, and half the amount on each of our 1040 line 16b.
    But now I'm wondering, since the 1099-R I received shows an amount that is twice what I'm entering on Form 1040 Line 16b, will the IRS look at Form 8958 and see that half the amount is allocated to my RDP, or will they think I've underreported my income and tell me I owe tax on the half I've allocated to him?
  • SF Peter -

    I think we're all in the same boat wondering what will happen if we adjust items on each individual income line instead of on line 21 as we have in prior years, however the published guidance from the IRS to date does not seem to leave much ambiguity on this point, from page 10 of the 01/2013 revision of Publication 555:

    "If you file separate returns, you and your spouse must each report half of your combined community income and deductions in addition to your separate income and deductions. Each of you must complete and attach Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return. On the appropriate lines of your separate Form 1040, list only your share of the income and deductions on the appropriate lines of your separate tax returns (wages, interest, dividends, etc.). The same reporting rule applies to RDPs and individuals in California and Washington who are married to an individual of the same sex."
    http://www.irs.gov/pub/irs-pdf/p555.pdf

    The IRS specifically indicates that we should list only our share of the income on the appropriate lines and give an example list of lines - wages, interest, dividends, etc., I don't see any way to read that to mean that we should report only our individual income as shown on W-2s etc., before community property adjustments on those lines and then make an adjustment on line 21 under "other income."

    I also would like to believe that the IRS has updated their automatic checks to reflect this new guidance. We won't know for sure until we see the results of filing this year, but I was hopeful that a user posted this efile rejection message (not related to a community property return) on the forums this year:
    "FW2-001 - The sum of all Form W-2s Line 1 must not be greater than the sum of Form 1040, Line 7 and sum of all Schedule C, Line 1 when Line 1 checkbox Statutory Employee is checked unless Form 8958 is present in the return. When evaluating this, a tolerance of $5.00 is allowed."
    https://ttlc.intuit.com/questions/1575263

    That makes it sound like the system has been adjusted to skip many of the automated checks against W-2s, etc., when a form 8958 is present in the return, which would further indicate that the IRS is expecting us to adjust our income on each individual line of the return and show the totals on form 8958.

    I saw in another thread that TurboTax plans to release another update on 2/21 that will include fixes for Form 8958, hopefully this will allow us to fill out these forms per the IRS directions: https://ttlc.intuit.com/questions/1695737
  • Thanks for your comment. Hopefully the presence of Form 8958 will prompt the IRS to look closely at that form whenever (aside from W-2s) the figures we enter on our 1040s on various lines for such things as interest, dividends, capital gains, pension/annuity distributions, etc., don't match the 1099s we've received from financial institutions. In previous years, whenever we got a 1099-int or 1099-Div for a joint account, one of us would put in the entire amount and then use the "nominee distribution" adjustment to subtract half of the total and report that on our partner's return. But now, that would screw up Form 8958, so I'm just putting half the amount on each of our returns, and the IRS will have look to Form 8958 to see how we divided it. Hopefully they will!
    I also used to file 1099-int and 1099-div forms to each other for half the joint interest/dividends. But I don't see any point in doing that this year, since that would be double reporting and might confuse the IRS even more.
  • Well I thought I was good to go until I read user02's posting.

    Like others, I had a worksheet I used in previous years to allocate income, etc.   I used the worksheet again this year  to calculate the community property adjustments to income, and input that number in TT on the appropriate screen.  TT transferred that lump sum amount to Line 21.  I also used the appropriate TT screen to split the federal withholdings, and it properly reflected that result on the Tax Payments Worksheet and also Line 62 of Form 1040.  I answered "no" to the other questions in TT for the allocations of spouse/partner community income.   I did not use the TT generated Form 8958 since in its current form, it is incorrect, but rather keyed in all my data manually onto the IRS's online PDF version (see my other post).

    I don't know what the new 2/21 update of Form 8958 will look like, but if user02 is correct about the need to only report "our share" of wages, interest, dividends, etc. (instead of reporting a total, and then adjusting on Line 21), then I have a lot of rework ahead of me.  For instance, in entering capital gains/losses, I'd have to split all that detailed data (# of shares sold, cost basis, sale value, etc.)!!?!

    Is everyone else going back and allocating each line of income?  I wonder if the IRS will reject a return if it is done the way I described above (and the way it has been done in prior years)?
  • I am not a tax professional, but would think if your return was manually reviewed that they wouldn't kick it back for putting the adjustment on line 21 instead of the individual lines since both methods should result in the same tax liability.

    It would be nice if TurboTax would allow us to enter all the original information off the forms from both spouses and then click a button to say "allocate 50% to spouse" that is enabled when you're MFS (or Single w/ SSM or RDP) in a community property state. That would preclude you from having to do a lot of reworking as they figure out which way to fill out the forms. (Would be even better if we could then quickly transfer all the information we've already input over to our spouse's returns too!) And for those who are able to file jointly TurboTax could even run an automatic comparison for you on whether you'd be better with MFJ or MFS status, but now I'm dreaming... If it's not resolved soon it's time to go back to the CPA for another year and ask for my TurboTax refund :).
  • I agree ... TTax s/w should auto-allocate the 50% of these items. We SHOULD be able to just enter the full amounts on 1 of the partner's return. Then TTax should do the 50% split -- if we elect that item needs to be split. Right now I have my Calculator up all the time while I have TTax up ...  However, I *still* am unable to (1) Enter Interest Income (or DIV), then (2) re-allocate it 50% to the joint owner in the TTax 'work sheet' steps.  The all-to-common "do not modify "YOU" prohibits changing these allocations. So TTax Support: What are the PROPER steps to enter Int or Div or other income/deductions, then have the abillity to SPLIT those that are community property?  (for the record, not EVERYTHING is/has to be COmmunity Property.)
  • As I understand it, for interest or dividend or capital gains, we don't enter the total amount even if it is reported under our SSN, but only the part (separate plus half of community income) that we're claiming. The "YOU" column on Form 8958 will transfer this figure, and then we put in the amount our RDP/Spouse is claiming in their column.
  • Consider paper filing, entering "see attached" on Form 8958, and attaching the line 21 worksheet. Here are some of the potential problems with the IRS' approach:
    1) Helen and Wendy: H has 120K salary income and H&W together have business partnership income of $60,000 -- $30K each. IS H's 30K subject to self-employment tax, or is H over the $110,100 limit? If the salary income is split 60K - 60K on line 7, it looks as tho $30K gets -- incorrectly -- included in figuring H's self-employment tax.
    2) William and Henry: W is age 63, retired and receiving $20K social security benefits. H is employed with wages of $80K/yr. If $40K of H's wages show on W's return, will the Social Security Administration -- which gets its info from the IRS -- think that W has continued to work, and trigger the formula that takes away W's social security benefits (or defers them to age 66)?
    Note also that anything that each domestic partner had already owned, on the date the State law changed and recognized their relationship, would start out as separate property, not community.
  • rhdlaw,

    I agree there are some more complex situations where the new calculation method and form may not work correctly, and in those situations I think it would be prudent to have a CPA or other professional prepare the return rather than doing it yourself with TurboTax and the limited advice it provides.

    On your first example regarding one partner with self-employment income and the other with regular income over the social security limit, I ran through Schedule SE and didn't run into the dilemma you encountered. Line 8a of Schedule SE (long form) does not rely on line 7 of your 1040 - instead it asks you to go back to your W-2 box 3, so Helen of your example would appropriately find themselves over the $110,100 limit by referring to their individual W-2s regardless of whether they report the community property adjusted values on 1040 line 7 or perform the adjustment on 1040 line 21. I think this has been the case on Schedule SE for some time as the definition of wages for social security and for wages as reported on 1040 line 7 are different. For example if you participate in a deferred compensation plan (401k, 403b, etc.,) your W-2 box 1 (the basis for your 1040 line 7) will exclude your contributions, but they'll be included in box 3 as they're subject to social security tax, and factored in when you determine if you're over the $110,100 limit for your self-employment tax. There may be some (even more) complex scenarios that don't work out correctly when you're filing form 4137 or 8919, but I didn't run through those.

    On the second example - not something I had thought of, and again a reason why it pays to consult a professional when you have an out-of-the-ordinary tax situation like living in a community property state and filing separate returns! I'm certainly not an authority on this, however I would have to think that the Social Security Administration is getting it's data from the IRS primarily via submitted W-2s, not from filed 1040s, otherwise this same dilemma would apply to couples where one is earning income and the other is drawing social security that choose to file a joint return. Additionally, with the difference in definitions between wages for social security vs. your 1040 it would be odd for the SSA to want to pull that data via 1040s unless it was only for income from work on 1040s that wasn't also being reported via W-2s, etc.,
  • user02,

    Yes, you're right and I was wrong. The returns for H and W will look odd, but (hopefully...) the IRS and Social Security computers have been reprogrammed so as to recognize a split for W-2 "wages" but not for "wages subject to social security tax." This highlights the problem with the IRS position that domestic partners have to split Schedule C income for self-employment tax, since wages *don't* get split for FICA, which is the main social security tax.

    Should a couple split social security *benefits* on 1040's? The IRS says only "consult your state law", but the law in the main community property state, California, is not entirely clear. (I think they are separate property and don't get split -- but some believe otherwise. And remember, "free advice isn't legal advice".)
      
    I agree that, unfortunately, the tax issues involved with separate returns in community property states are complicated and uncertain. Folks who try to prepare own 1040's are in for frustration and errors and are well advised to consult a professional -- defined as "Someone you pay to make your mistakes for you."
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Here is the link to Form 8958 that I used:

http://www.irs.gov/pub/irs-pdf/f8958.pdf
  • Thanks ... Follow-up question for those who have mushged thru this..  So last year, we received a STATE INCOME TAX REFUND that was in BOTH our names (since we file CA State as "married/RDP").  Did you SPLIT the amount over 2 returns, or did you just add the full amount to 1 of the partner's returns and use FORM 8958 to "split" it there?  I'm a bit concerned that the FED will see the Refund as the larger amount ..
  • Based on how I'm reading publication 555 I think you would report half of it on line 10 of each return (assuming it's taxable - http://www.taxslayer.com/support/324) and show the full amount on form 8958, just as you would for all your other income lines.
  • What a mess ... (done ranting) ...
  • I've already asked for my TT refund.  What a mess.  Taking our info and going to H&R hoping for some help.
  • I gave up on TT and went to TaxAct.  Their instructions are different as they say to split 1099-R and the W-2's and report half on each (as opposed the the line 21 adjustments).  I have done this for years without an issue from the IRS, though I think it is really not correct.  This year we had only 1099-R and interest income to report.  I always send copies of the 1099's and W-2's with both returns.  I couldn't get the 8958 to look right in TT.  I switched back to Tax Act, they respond by e-mail within two days with detailed instructions when I e-mailed them.  I still couldn't get 8958 to look exactly right with their software either, BUT they do allow you to override any field and key over it, with the warning that you cannot e-file.  Since I had not intention of e-filing this mess, I just printed out and mailed in the forms.  Today, only 15 days after placing the forms in the mail, we got our refunds, in spite of the 6 to 8 weeks indicated by the IRS.  I get TT free from my investment company, otherwise I would insist on a refund.  I hope they fix it for next year and will give it a try again, but I was not impressed with my first attempt.  Their bottom line numbers were identical to what the other software provided.
  • My Theory is that because Turbo Tax doesn't automatically split or allocate the income amounts, you need to have the adjustment amounts show for both partners so that the totals equal the Net Income for Both Partners, as if these income amounts had been split.  If you check Turbo Tax splits the Tax amounts evenly, but the income amounts are adjusted by the "Other Income" Community Property Adjustment.
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As the original poster, I just wanted to report back that both my spouse and I received our refunds with no delays or issues.  I reported our community property adjustments on Line 21, and filled out the form 8958 by hand after downloading it from the IRS.
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    Lapith,

    I too called customer support, and the agent had no idea what I was talking about. I eventually got to speak to a tax advisor (the TurboTax hold music is now permanently burned into my brain). The tax advisor, whose name was Rocky, at least understood my issue when I shared my screen with him and walked him through my analysis.

    Rocky was not sure how to resolve the problem at first, but in the end we figured out together that the software seems to be directing users to make the community property adjustment for wages on line 7 of the 1040 - not line 21. This runs counter to other advice I received and articles that I read online (authored by tax professionals).

    Rocky advised me to add the Community Property positive income adjustment under "Miscellaneous Income, 1099A, 1099C" (at the bottom of the Wages & Income screen). After selecting that area, the first choice at the top is "Other Income not already reported on a form W-2." The rest of the path is as follows:

    Did you receive any other wages? YES
    Continue...
    Continue....
    Any Other earned income: examples include "your share of your spouse's community property wages."
    Did you earn any other wages? YES
    "Other"
    Type in "Community Property Wages," and the amount (if negative, put a minus in front of the number).

    This places the figure on line 7 of the 1040.

    The process for adjusting interest on your 1099-INTs was even more convoluted and did not seem as though it was the appropriate way to make a community property interest adjustment.

    After making these changes in the Wage and Income area, I deleted the figures I had previously entered into the Community Property Income Adjustments screen. That removed the "other income" entry from line 12 of the form 8958.

    While this solution worked, and seems to be what TurboTax intends you to do, I was not comfortable with it. I wanted my community property adjustments to be made on line 21 with an explanation.

    In the end I backed out of the changes that Rocky had suggested, and whited out the "Other Income" entry on the printed copy of form 8958, line 12. That is the only place it appears (the 1040 itself is correct). My return could not be e-filed anyway, so white out did the trick for me - an inelegant, but effective workaround.


    • Interesting--this is not the result that tax advisor David recommended.  The software generated an adjustment on Line 21 labeled "Positive [or Negative] Community Property Adjust." and David thought that was correct.  That also matches my understanding of Publ. 555.  It looks like the Line 7 workaround you were advised to use would result in the same tax burden, so it doesn't change the math.  Maybe that's a workaround that people were using prior to IRS clarifying with Publ. 555?

      In any case, I may follow your lead and just fill out my own Form 8958.  That will allow me to either remove the "Other income" entry entirely, or at least rename it to make clear it is the community property adjustment.
    • You are right, either approach does not change the math. I believe that putting the adjustment on Line 21 with correct labeling, and submitting the Form 8958 as an explanation of how income and withholding amounts are split, is the simpler and smarter way to go.

      As a point of interest, I think that TurboTax  intends for the  Community Property Income Adjustments screen (where you and I opted to enter the net adjustment amount) to be used for OTHER kinds of community property adjustments not covered by the step-by-step screens. That would explain why it is flagged as "other income" to be allocated on the Form 8958.

      The fact that there is a mention of community property wages in the section that Rocky directed me to (Miscellaneous Income) tells me that TurboTax is set up to have users make wage adjustments there, interest adjustments in the interest section, dividends in the dividend section, self-employment income in the business section etc. I think the Community Property Income Adjustment is supposed to be a catch-all for other forms of community property income. If you ask me, this approach is much more complex and messy, and likely to trigger letters from the IRS.

      It would be nice, to say the least, if TurboTax provided users with more help in understanding what the software is trying to do and how to enter these adjustments. I understand of course that the software cannot tell people how to allocate community property, but if one one knows what they want to allocate, the software should provide more guidance on specifically how to enter those numbers.

      Thanks for collaborating with me on this issue - your input has been most helpful. I am ready to file now, and hopefully next year I'll know what to do. I may update this thread later after the IRS processes my return.
    • I was reading through the January 2013 version of Publication 555 that reflects the availability of Form 8958 and it sounds like the previous method of reporting on Line 21 of Form 1040 is no longer recommended. Instead you can report just your share of the community property income on each relevant line:

      "On the appropriate lines of your separate Form 1040, list only your share of the income and deductions on the appropriate lines of your separate tax returns (wages, interest, dividends, etc.). The same reporting rule applies to RDPs and indi- viduals in California and Washington who are married to an individual of the same sex."

      TurboTax has implemented this new form so poorly I'm tempted to just fill out my forms by hand this year.
    • I saw that section in Publication 555. I also found a number of tax experts writing about the issue and asserting that no one actually files that way. I would have been willing to try filing that way this year if TurboTax didn't make it so difficult to adjust the figures for each spouse on the "appropriate lines." Perhaps next year the software will support this way of reporting. Or, one can always do what you mention - use TT to help generate the numbers, and then fill them in by hand, doing the 50/50 splits yourself and filling out your own Form 8958.

      Despite what it says in Publication 555, I am still not convinced that the IRS actually wants to see figures on those lines that don't correspond to the filer's W-2's, 1099s, and other income documents.
    • This whole things is once again a huge MESS -- thanks TTax !  After doing my own separate Spreadsheets over the last few years (as well as amending previous years thru 2009), I'd prefer to just go back to a spreadsheet. But alas, the IRS now how this new Form 8958. The HELP is pretty non-existent in the TTAx s/w .. and as many of you have experieinced, calling TTax for HELP is a very tedious and lenghtly process, normally resulting in unknowledgeable support staff for this topic.  Thanks to all of you who have mushed thru this and contributed here. If TTax doesn't get their s/w updated to reflect this discussion, I may do as prescribed and just hand-fill out the FORM 8958 and be done with it.  THANKS DOMA !!! ((sarcasm))
    • I downloaded a new update for TurboTax today and I'm left even more confused.

      For example, on the "Community Property - Wages" page the old text:
      "If you make any changes to the taxpayer column, these changes will not be reflected in your return. You will need to return to the W-2 section of TurboTax to make the necessary changes."

      Has been replaced with:
      "Don't change or enter any new values into the 'You' column. If you need to make any changes to the 'You' column, you will need to return to that section of TurboTax and update the necessary information."

      And the value in the 'You' field is no longer editable - you're stuck with whatever you entered off of your W-2. Am I really supposed to go back and edit my W-2 data so it is wrong? I don't see any mechanism to input the correct information.

      Additionally, I can't add lines here that don't correspond to W-2's I haven't previously entered - i.e., my spouse's W-2, even though at the top it says I should "enter any additional information that applies to your partner/spouse." I take it that I'm supposed to enter my spouse's W-2's back in the Wages & Income section in order to have Form 8958 filled out properly, but there's no way to properly indicate which partner received the income back on the W-2 entry page.

      I'm also concerned that TurboTax has now forced us into reporting a value on line 7 that doesn't reflect the total of our W-2's if we want 8958 filled out anywhere close to accurately. If I want line 7 to reflect what has been reported on my W-2 and then show the community property adjustments on 1040 line 21 I would need to send a paper return, discarding the 8958 TurboTax generated and replacing it with one that I create by hand (what's the point of having TurboTax again?)

      If TurboTax made it clear that they thought it was correct for my 1040 line 7 to reflect something other than what was shown on my W-2s I wouldn't worry about it so much, but there is no clear indication in the W-2 entry sequence that I'm supposed to be performing community property adjustments here.

      Needless to say I'm frustrated. I was hoping with this update that things would be more clear - instead I'm left with fewer options, but just as much confusion.
    • In searching around for more information this evening I noticed a number of people complaining (for unrelated reasons) about getting an IRS reject message on e-filing with the following text:

      "FW2-001 - The sum of all Form W-2s Line 1 must not be greater than the sum of Form 1040, Line 7 and sum of all Schedule C, Line 1 when Line 1 checkbox Statutory Employee is checked unless Form 8958 is present in the return. When evaluating this, a tolerance of $5.00 is allowed"

      This would seem to imply that the IRS does expect us to reduce the Form 1040 line 7 amount by whatever we show on Form 8958 and not use line 21 for the adjustments as in past years (before 8958). Now if only I could enter the correct values for all my W-2s and my spouse's W-2s into TT and there was a place to *adjust* the values for community property...
    • user 02,

      When I spoke with TT's tax advisor, he did show me how to adjust the W-2 amounts in the Wages section of the software. You don't make changes directly to your W-2 information and you don't enter your spouse's W-2. You enter your own W-2 information, and then you adjust the total as follows. It is hard to find and you have know where to look.

      Under  "Miscellaneous Income, 1099A, 1099C" (at the bottom of the Wages & Income screen), the first choice at the top is "Other Income not already reported on a form W-2." The rest of the path is as follows:

      Did you receive any other wages? YES
      Continue...
      Continue....
      Any Other earned income: examples include "your share of your spouse's community property wages."
      Did you earn any other wages? YES
      "Other"
      Type in "Community Property Wages," and the amount (if negative, put a minus in front of the number).

      This places the adjusted figure on line 7 of the 1040.

      I did not do my return this way, but it may be the correct method. No one seems to be sure. The tax advisor also told me that I would definitely have to file a paper return.
    • Hey, I filled out everything as I could and the result is NOT ok. I have decided to download a form 8958 from the IRS and fill it out manually because the Line 21 - Other Income that Turbo Tax has come-up with is the correct number but not the true picture. My allocations for W2 Income and Taxes withheld did not show on each items line 1 and Line 11- as it should have. I want to avoid getting IRS questions about lumping everything into line 21 on From8958. I would have expected Turbo Tax to report exactly what was entered.
    • I'm in a RDP in WA state.  I'm very confused at this point as to which line I'm supposed to report the adjustments on.  Does anyone know if TurboTax is going to come out with a definitive statement on how it should be done?
    • Also, I forgot to mention.  I'm on a mac using turbo tax basic.  I am unable to add descriptions of my partner's items on the 8958 worksheet.  TT allows me to add values, but no descriptions.  I can't file like this.
    • Hi Yinzer, I'm in same-sex marriage in CA and having same problem as you.   I've talked to a TT support agent who said he filed a bug on this issue, but admitted it might not get fixed until next year.  So I'm planning to fill out the 8958 by hand, which means I can't e-file, but I don't think I could have e-filed anyway since I need to adjust withholdings.    

      I'm also having same dilema as User02 and others, as to whether 1040 Line 7 should include 100% of community property income or 50% of it, and I've gotten contradictory answers from two different TT tax specialists.    I agree with Herickson above, seems clearer to put full amounts on Line 7 and then adjust on Line 21 (on both returns) but then that makes TT enter seemingly wrong values in Form 8958, but I'm filling out that one by hand anyway so no big deal.  

      Except that I don't understand how a correctly completed Form 8958 (and 1040) is supposed to look, I wish the IRS or TT or other authority would post an example (with mock data of course).
    • Been fighting with Turbo Tax all day trying to make sense of the Community Property laws that require us to file out form 8958.   Does my taxes increase because of my partners income that she has already paid taxes on?    What exactly am I supposed to report on the 8958 - her whole income amount - or half the amount.   Then what exactly am I entering in the additions/subtractions portion of Turbo Tax?
      Also....I am in a RDP in WA but I work in OR - when I try to start my OR state tax, it blocks me stating I'm in a RDP and I need to fill out a mock Federal form for it to import the values.    It shouldn't matter about my RDP status because I live in WA, just have to pay Oregon Taxes on my income there.
    • d_routt,
      When you live in a community property state and are married or in an RDP but need to file a state return in another state that doesn't recognize community property rules you're in a relatively unique situation that TurboTax probably isn't the best at providing guidance for. Particularly if this is your first year in this situation you really may want to see a CPA or tax professional. Most states want to rely on information from your federal return, but the federal return you will be filing is going to reflect income according to the community property law in the state you reside, but Oregon tax code may not follow these laws. Good luck!
    Cancel
    WA resident, same-sex marriage, using the software rather than web entry.  I am not having any difficulty with the first issue that seems to be bothering you--the warning that changes to the taxpayer column will not flow back into the W-2/Interest/etc. portions of the return.  I had filled in most of our returns prior to TurboTax updating the software to include Form 8958.  When it updated, at first the software would not give me the community property options when I went to finish the "Other Tax Situations" section, which is how I had previously entered the community property plus/minus information.  Eventually, I ran the error check, which flagged 1 issue and gave me the option to "Activate" Form 8958 and check the "Yes" box.  The form itself loaded within a window with the ability to fill in cells (which had not been automatically filled with the spouse name/SSN that I had previously provided before the form was available).  From there, I was able to fill in Form 8958 directly to add the other spouse's W-2/interest/etc., and fill in the columns to divide all of our community income in half. The "Total Income (Community/Separate)" column automatically provided the sum of the two spouse columns. The tax withholding for the filing spouse was automatically filled in with a number that was the sum of withholdings from the filer's W-2 plus the extra withholding I had previously entered as a community property withholding adjustment before the form was available.  I manually filled in the other spouse's total withholding, taking into account the community property adjustment. So far so good.

    BUT: then I run into the same problem that you report.  The community property adjustment amount (which I had entered last week, before the form was available) is automatically entered as an "other income" item on the form, and I cannot delete it.  As you explain, this is clearly incorrect.  The community property adjustment is "other income" for purposes of Line 21, but it cannot be other income for the purpose of calculating itself on Form 8958.  Nothing in Publication 555 suggests that result.

    After saving the form, I can go back to the "Other Tax Situations" section, click "Done with Other", and now the community property items appear.  The information I had entered directly into Form 8958 now appears, screen by screen, on the pages as you have described--with the other spouse's W-2, etc., and the columns reflecting the division of community property that I entered.  When I come to the "Other income" screen, there again is a line showing the amount of the community property adjustment.  Again, I can't delete it.

    I think you've correctly diagnosed the problem, that TurboTax misprogrammed this new form in a way that fails to recognize that the community property adjustment is not "other income" for the purpose of the community property form.  Sloppy.  I hope they fix this soon.
      Cancel
      For everyone who is defaulting to completing Form 8958 manually, you can bring up the PDF version from the IRS website.  It allows you to type the data into the PDF form, which then can be printed.   I don't think you can save it, but at least it saves the effort of writing it all out by hand.
      Cancel
      I'm having troubles too. Our situation is very simple, but I cannot get form 8958 to be filed out correctly by TT.  I'm fairly sure the taxes are all calculated correctly though.

      I have no W-2 income. My 8958 correctly splits the W-2 income in Line 1. My partner's does not split and shows his portion as 100%. I cannot get this to change.  

      On my 8958 one of two interest incomes on Line 2 will not split correctly. It's aggravating since one of them does split correctly.

      I think I'll fill them out myself and mail the returns. In the previous two years I've sent them in both in the same envelope with a cover sheet saying "Two Returns, RDP CA Community Property." We got our refunds fairly quickly.
      • Agreed ...  I don't know WHY TTAX has not fixed this yet. I plan to do the same thing - just fill out 8959 by hand (keyed in, via that PDF link) and just file it by mail ... Ours is equally straightforward - only 1 of us has a W2 ...  but fot the life of me I can't get the entry into TTAX correctly   (Come on TTAX !!!!  Get this crap together!!)
      • I have to amend my comments on the interest income. I cannot get them to split correctly either. It's just a few dollars so I'm taking 100% on my return and zero on his.
      • I don't understand why you are having trouble splitting interest income. If you enter half the community interest on your schedule B, it should automatically appear in the "YOU" column of Form 8958. Then you enter his half directly into his column.
      • Scott_D,

        Since I have uninstalled the software and requested a refund, I can't go back and look, but -- I had 1099s and I needed to report half the amount on my return. TurboTax automatically fills in your return with the amounts you input from your 1099s, so I was perplexed about how to report only half the amount on line 8a without altering the 1099 itself.The TurboTax Tax Advisor explained to me that I could adjust the interest for each 1099. Click "edit" for each 1099, click "Continue," and select "I need to adjust the amount."  On the next screen it asks for the reason for the adjustment; Community Property is not one of the reasons listed so one would have to put "Other reasons." This is what the Turbo Tax expert advised me to do.
      • I tried the same thing initially, using "Nominee Interest" instead of "Other reasons." The problem is that TurboTax will transfer the full amount to your column on Form 8958; if you then put in half the amount in your partner's column the "Total" column will equal 150% of the actual amount. In addition, there will be a negative 50% adjustment either as Nominee Interest or "other" on a separate line.in the YOU column.
        But since the IRS instructions tell us to simply enter our share of the community interest (and other community income) on the appropriate lines -- NOT the amount on the 1099s we receive -- the problem is solved by simply following that instruction

        Of course, we have to trust that the IRS will actually look at the Form 8958 and realize that we divided the interest and so forth, but if worse comes to worse, they'll write us and we can explain.
      • If you're planning on paper filing it doesn't matter what you tell TurboTax is on the 1099s. You can divide the amount in half and enter that as the amount "on the 1099" as SF Peter suggests. Wouldn't be an issue if TurboTax could do the basic math properly, but as you've found TurboTax precludes you from getting the math right on 8958 without a lot of messing around...

        Also - I'd advise against mailing multiple returns in the same envelope based on what I've seen online, i.e.,:
        http://taxblawg.net/2011/11/03/how-do-you-know-the-irs-received-what-you-sent/

        If you skim through the IRS' mail receiving instructions you'll find that employees tasked with opening mail are supposed to attach the original envelope to each return so the original postmark is maintained with the return. If an envelope has multiple returns the mail processors are supposed to use a special kind of stamp on the return that they can't attach the envelope too (since there's only one envelope). I can only imagine where something might go wrong in that process :).
        http://www.irs.gov/irm/part3/irm_03-010-072r-cont01.html
      • I just downloaded the updates and re-ran the Other Tax Situations. It let me correctly allocate the W2 income, dividends and interest. I also note that the 8958 is now editable. Printing them now, but they look correct  now.
      • Well I was specifically told two years ago to send both returns in one envelope. So, I did it again last year. Not problems. Now I'm torn.
      • Send separately.  Friends sent their returns in the same envelope two years ago and they are still working with the IRS to get it straightened out.
      • Does anyone has already filed MFS with form 8958? How do you fill the line 1 wages section? Do you put your full w2 amount in this  line and same thing for your spouse, then have the line 12 other income- community property income adjustment ? or you put 50% of you and your spouse combined income amount in Line 1 of form 8958 and no line 12 amount but need to do this by complete manually instead of using TT ?
      • This is all beyond ridiculous. I spent an hour on chat with someone who barely had two words to type. Sat on hold for over an hour and got no where. Call disconnected. I'm so beyond annoyed. Turbo Tax is the ONLY online tax preparation site that makes you do a community property worksheet. Why is that?!
      • (by no means to defend TTax) Actually, the Community Property "requirement" is an IRS PUB 555 requirement. TTax just this year tried to "automate" it ... and poorly implemented the worksheet in their product. I decided to just fill out the form manually as in years past and snail mail it to the IRS since you can't file it electronically anyway.
      • Cody and others: Not to defend TTax (or the IRS) either, but I successfully e-filed with Form 8958 for both myself and my RDP two days ago. It might make a difference that we didn't have W-2s to split and no withholding. However, we did have interest, dividends and other income that had to be divided and get reported on the form 8958.

        I hope TTax takes note, however, that there are still serious bugs in their incorporation of form 8958 in the program. When I made corrections or additions, for instance, on Schedule B, it would overwrite a previous entry on Form 8958. I had to go over the Form every time I changed something that would appear  in the "You column," because it often screwed up a different entry. It's hard to explain without going into detail, but suffice it to say, it hardly works seemlessly.
      Cancel
      As of 4/7/13, form 8958 in TurboTax is still hopeless. Do NOT use it. I was able to use TT for all the other forms by entering the allocated amounts in each return.
        Cancel
        As of 4/12/13, it looks like TT fixed the "Other Income" issue. In the window where it shows "Other Income" with the amount that you can't delete before, you can now put $0.00. It won't let you delete the line but you can change the amount. For my needs, I won't need to fill out the Form 8958 manually.
        • With a whole 3 days to spare! Bravo!!
        • 8958 is worthless on every website including HR. The community property mess is a huge headache!
        • Absolutely! The real problem is not the form, or the programming, but the law itself and the IRS interpretation of DOMA. Deciding whether income or property is community or separate involves some fine legal distinctions -- the kind that keep divorce lawyers in fees. I wonder how many folks who filed Form 8958 actually got the classifications correct. For example, suppose H and W are domestic partners in California, and H owns a rental property in Texas. Is the rental income community or separate? No matter how you answer this, you have a 50% chance of being right.
        Cancel
        This is a pain. My husband and I actually reside in Georgia but his official home state is Louisiana. My husband is in the Air Force therefore making this form populate. I've already filed my taxes I'm just trying to conquer his. I'm waiting on the form that I was to receive on 1/30. This is an absoulte waste of time because we own no property in Louisiana nor do we reside there. I can't even efile the state taxes because it keeps throwing me back to this federal error. I've been on the phone off and on for hours listening to the horrible hold music and the confused voices of CSRs. Someone please help.
          Cancel

          It looks like it's been a while since anyone posted about this, but I'm having problems with the form because its taking the bulk of wages putting into the "other income" category.  All the other allocations haven't been split at all, but I *think* perhaps that the "other income," line 21, which refers to line 12 of the form, takes all of that into account. I think even though the numbers aren't correctly allocated, the sum of all the numbers is correct. I could be totally wrong, but I'm just going to mail in my return and let the chips fall where they fall. I got the audit protection, so if I get audited, it's Intuit's problem (and my problem if I end up owing a lot of money.  All I can do is answer Turbo Tax's questions as honestly as I can and put in the numbers that I have.  If I'm wrong, so bit. Perhaps making this confusing is Turbo Tax's way to get us to sign up for Audit Protection? I know that sounds conspiratorial, and in reality, for only $60.00, they will end up losing a lot of money if tons of people get audited because of bad software design regarding community property tax returns for married filing separately.

            Cancel
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