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Say I work in a communal property state (A), and my spouse work in a non-communal property state (T). I guess we have to file our respective state tax separately to make things simple. But should we file federal tax jointly or separately? Will filing federal tax jointly mess up with filing state tax separately?

To make things really simple, we could file both federal and state tax separately. But because I live in a communal property state, if I file the federal tax separately, I am supposed to only include half of my salary in the tax return, right? Does my spouse then need to add the other half of my salary as her income in her federal return? Does she need to file state tax in my state as well since she's now getting half of my salary as her income?

What's the easiest solution here? Thanks in advance!

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To make things really simple, we could file both federal and state tax separately. But because I live in a communal property state, if I file the federal tax separately, I am supposed to only include half of my salary in the tax return, right?

Yes

Does my spouse then need to add the other half of my salary as her income in her federal return?

Yes

Does she need to file state tax in my state as well since she's now getting half of my salary as her income?

Yes, since it's CA-source income.

Let's consider the different options.

If you file federal taxes MFJ:

  • You guys will file CA taxes MFJ using form 540NR, since one spouse is nonresident. It will include all of your income and none of your spouse's income. The tax rate will still be based on the total income of both of you.

  • For CT taxes, you have two options:

    • You guys can file MFS (i.e. you spouse files MFS and you don't file) since one of you is a CT resident and the other a CT nonresident. Your spouse's return will contain half of your income and all of her income.
    • You guys can choose to file MFJ, treating you as a CT resident. Your return will contain all of your and her income.

    In both cases, a CT-1040 return is filed, and a tax credit can be claimed on it (with Schedule 2) for the taxes on the income taxed by both CA and CT (i.e. your income or part of it).

If you file federal taxes MFS:

  • Your federal tax return will contain half of your income, and her tax return will contain half of your income and all of her income. The total taxes will almost certainly be more than with MFJ.

  • You will file CA tax MFS with form 540, including half of your income. She will file guys will file CA tax MFS with form 540NR, including half of your income, but her tax rate will be based on the total of half of your income and all of her income.

  • She will file CT tax MFS and you don't file. Her CT return will contain half of your income and all of her income. A tax credit can be claimed on her CT return for the taxes on the income taxed by both CA and CT (i.e. half of your income).

So as you can see, you don't really gain anything from filing MFS for federal, and potentially stand to lose from filing MFS since the tax brackets are designed so that MFS always has equal or more taxes than MFJ for a given combined income (without considering credits and other things).

With federal MFS, you file MFS for CT, but with federal MFJ, you still can file MFS for CT, and in fact, you have the option of MFS or MFJ for CT, and choose whichever one is better, so you don't lose any options for CT and gain more options by doing federal MFJ. And for CA, no matter if you file MFJ or MFS, the total amount that is taxed is your income; the comparison of tax rates is more complicated with your spouse's tax rate based on her whole income, but MFS is still unlikely to be better than MFJ for CA.

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  • Thanks so much, user102008! This is very clear and helpful. Just a few follow-ups: 1) Does half of my income just mean my CA-sourced w-2 income, or does it include stock gains/losses and bank interests, which are not really from CA? 2)Tax softwares ask me the numbers on my w-2, do I just manually divide whatever number by 2? How do I explain it? 3) If we do everything on standard tax software like freetaxusa, will it figure out the tax credits on taxed paid to the other state automatically? Thanks so much again! – Mas Jul 11 at 17:38
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    @Mas: 1) All of your income (wages, interest, capital gains, etc) are community income, so half of your income of all types is your spouse's income. So the half that is attributed to you is taxed as the (whatever state)-source income of a CA resident, and the half that is attributed to her is taxed as the (whatever state)-source income of a CT resident. I am not sure about how they determine source state for interest and capital gains. 2) I believe some tax software might have a specific screen to do community property adjustments. – user102008 Jul 11 at 17:51
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    @Mas: but remember that when you guys do MFS, you only have half of your income, and she has her income plus half of your income. So will the incomes still be similar when split like that? – user102008 Jul 11 at 20:47
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    @Mas: Do you mean line 56 is less than line 57? That would mean that your CT tax rate is less than your CA tax rate. You can only get a credit for the lesser of the tax you paid to the two states on doubly-taxed income (the net result being that you only pay the higher tax of the two). – user102008 Jul 14 at 3:22
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    @Mas: You are a resident of CA. Filing 540NR doesn't mean you are both nonresidents. Rather, California requires a resident and a nonresident filing jointly to use form 540NR. See the 540 instructions section Filing Status, at the bottom, "If you filed a joint tax return and either you or your spouse/RDP was a nonresident for 2019, you must file the Form 540NR, California Nonresident or Part-Year Resident Income Tax Return." And the 540NR instructions section Filing Status, at bottom, "Use Form 540NR if either you or your spouse/RDP were a nonresident or part-year resident in tax year 2019." – user102008 Jul 14 at 6:22

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