State tax question (CA, WA)

[Cpadave]

Would anyone know the answer to this question. This is for my nephew who moved to CA for job opportunity. His wife lives and work in WA. Both CA and Washington are community states. In this case, would the one in CA be forced to pick up half of the income from Washington state and pay tax? Effectively taxing all CA sourced income and 1/2 of income of the spouse in WA. Can they file MFJ on Fed and MFS on CA? Is there anyway to avoid having to pay tax on nonresident spouse income in CA? Thank you for your help.

[Ready]

I think you are going to find that if they don't file MFS they are going to create a very messy situation for themselves because they would have to first create a MFJ federal return, then create a dummy MFS federal return to support their respective state filings.

We are in the same situation and have determined that MFJ isn't worth the hassle nor the audit risk.

[Sunset]

This sounds to me like you should file MFJ in WA for Federal, and MFS for the States.
After all the Fed vs State returns are separate things, and doing something on the Fed does not mean you have to do it on the State, example Fed return, and FL (no return).

So I binged it, and you should do differently:

https://ttlc.intuit.com/questions/19...-state-returns

[Cpadave]

Quote:

Originally Posted by Ready I think you are going to find that if they don't file MFS they are going to create a very messy situation for themselves because they would have to first create a MFJ federal return, then create a dummy MFS federal return to support their respective state filings. We are in the same situation and have determined that MFJ isn't worth the hassle nor the audit risk.

Thanks for the reply. So am I right to think that even though his wife does not live in CA , half of her income will still be taxes in CA? Because they both live in a community state. Is there a way to sign an agreement between them that indicates he is not entitled to her income and therefore no need to pick up that income in CA?

This would not be a big deal if WA also had income tax. At least he would be able to get a credit for that. It seems unfair to have to pay tax on income earned in state without any income tax.

[cathy63]

Quote:

Originally Posted by Sunset This sounds to me like you should file MFJ in WA for Federal, and MFS for the States. After all the Fed vs State returns are separate things, and doing something on the Fed does not mean you have to do it on the State, example Fed return, and FL (no return). So I binged it, and you should do differently: https://ttlc.intuit.com/questions/19...-state-returns

CA requires you to use the same filing status as you used on your federal return. Unless there's an exception in the CA tax code for this specific case, they will need to file as MFJ or MFS on both.

Also, since CA and WA are both community property states, I believe half the wife's earnings belong to the nephew, even if they file as MFS; similarly, half the nephew's earnings belong to the wife. So it may not help to file MFS if he still has to report half her wages as community income.

Is there any way the nephew can claim to live in WA and just work in CA? I think that would allow them to pay CA tax on only the CA earnings, but they need to work through the CA 540NR form to find out for sure. I just worked on this with my daughter, who is single, and claiming NJ as her primary residence allowed her to pay CA tax on only the wages that she earned here. She then took the CA tax she paid as a credit on her NJ state tax.

[Cpadave]

Quote:

Originally Posted by Sunset This sounds to me like you should file MFJ in WA for Federal, and MFS for the States. After all the Fed vs State returns are separate things, and doing something on the Fed does not mean you have to do it on the State, example Fed return, and FL (no return). So I binged it, and you should do differently: https://ttlc.intuit.com/questions/19...-state-returns

Thanks for the reply. I think CA requires one to file the same filing as on Federal return. There is an exception for nonresident spouse with CA income. But I think in this case he would not qualify as the spouse might be deemed to have CA income by legal right of community states.

[Brat]

I am not a tax preparer but I see two choices here: 1) if half of her income is attributable to him then half of his income is attributable to her. Odds are her income is less than his so his CA taxable income would be lower. 2) If they keep their financial activities separate in every respect then only his income would be reportable in CA. He should visit her in WA, she should stay out of CA.

I wouldn't depend on tax prep software to answer this question. It is worthwhile to pay a CA licenced tax preparer to handle this issue.

[Ready]

Quote:

Originally Posted by Cpadave Thanks for the reply. So am I right to think that even though his wife does not live in CA , half of her income will still be taxes in CA? Because they both live in a community state. Is there a way to sign an agreement between them that indicates he is not entitled to her income and therefore no need to pick up that income in CA? This would not be a big deal if WA also had income tax. At least he would be able to get a credit for that. It seems unfair to have to pay tax on income earned in state without any income tax.

I'm not a tax expert so don't take my advice as accurate, but my understanding of MFS is that each person only reports their own income to both fed and state. I suppose if they have joint investments a decision has to be made who is going to pick it up. We don't have that issue as we keep our finances completely separate.

[cathy63]

Quote:

Originally Posted by Ready I'm not a tax expert so don't take my advice as accurate, but my understanding of MFS is that each person only reports their own income to both fed and state. I suppose if they have joint investments a decision has to be made who is going to pick it up. We don't have that issue as we keep our finances completely separate.

That's not how it works in community property states, which both WA and CA are. If both have ordinary W-2 jobs and wife earns $x and husband earns $y, and they file separately, then both spouses have to report ($x+$y)/2 as income on their federal and state returns.

See IRS pub 555 for details.

[Ready]

Quote:

Originally Posted by cathy63 That's not how it works in community property states, which both WA and CA are. If both have ordinary W-2 jobs and wife earns $x and husband earns $y, and they file separately, then both spouses have to report ($x+$y)/2 as income on their federal and state returns. See IRS pub 555 for details.

We have been doing it this way for three years. But we are in CA and NV, and NV has no state income tax, although they are considered a community property state. I'm not sure if that makes a difference. I'll read through pub 555 and see what I can make of it.

[Cpadave]

Thank You all for the replies. I gave him some information and asked him to speak with a CA Cpa for advice. This is a very unique situation where husband and wife each live and work in different states which are both community states. Even though I am a tax Cpa, I am unable to give him more advice. It also doesn't help that I have been retired for more than 10 years.

[haha]

Quote:

Originally Posted by Cpadave Would anyone know the answer to this question. This is for my nephew who moved to CA for job opportunity. His wife lives and work in WA. Both CA and Washington are community states. In this case, would the one in CA be forced to pick up half of the income from Washington state and pay tax? Effectively taxing all CA sourced income and 1/2 of income of the spouse in WA. Can they file MFJ on Fed and MFS on CA? Is there anyway to avoid having to pay tax on nonresident spouse income in CA? Thank you for your help.

Young married people living apart are inviting fooling around and getting divorced. Whatever the taxes, they should live together if they hope to stay married. Thus spake Zarathustra.

Ha

[Brat]

Actually I agree unless the CA (I surmise Silicon Valley) spouse is in the Valley weekdays working horrible hours (as is customary there) and they meetup weekends. Those long hours are tough on a marriage even when a couple lives together. Housing prices in SV are unreal while those in Seattle and Portland Metro (which includes two WA counties) are just high. Some Alaska and Southwest flights between SEA and PDX are referred to as 'commuter' flights - Intel even has daily corporate flights between Hillsboro (Oregon) and San Jose. Families live in Seattle and Portland Metros while a spouse rents a room in Cupertino or Mountain View.