Assume husband is moving out of the California permanently (with out stepping back in) and lives in non-community property state (Oregon, Wyoming). California wife doesn't have any income from either California or other sources. If filing MFJ at federal level, and MFJ at state, does the joint filers has to pay the taxes for the income earned in Orgeon ? How about MFJ at federal and MFS at state (because the husband doesn't have California sourced income and has lived out of California whole year) , does the California spouse have to pay taxes on the Oregon spouse's income. I know if Oregon were a community property state, then you'll have to split the Oregon income in 1/2 and pay California taxes on one half while filing MFJ for california.
2 Answers
If filing MFJ at federal level, and MFJ at state, does the joint filers has to pay the taxes for the income earned in Orgeon ?
Well obviously they need to pay federal and Oregon taxes on the income earned in Oregon. If you are asking about California taxes, then no, because there is no California income, and the California resident does not have any income. The person earning the income is domiciled in Oregon, a non-community-property state, so all of that income is solely that person's income, and it is not half the other spouse's income. Therefore, the California spouse has no income.
Now if it were the other way around (California spouse has income and Oregon spouse doesn't), then the California spouse's income would be half each spouse's income, so all of the income would be taxed in California but half also taxed in Oregon, and they can take a credit for that half on the California return.
How about MFJ at federal and MFS at state (because the husband doesn't have California sourced income and has lived out of California whole year) , does the California spouse have to pay taxes on the Oregon spouse's income.
No, for the same reason as above. (No California income and the California resident has no income.) You can see this from Publication 1031, section "How To Split Income on Form 540NR" (page 13), in cases 3 and 4, for where one spouse is domiciled in a community property state (e.g. California) and one is domiciled in a separate property state (e.g. Oregon). When filing separately, the community property state spouse would put in column E (California amounts) half of their income taxable by California (which in your case is 0 since the California spouse has no income), and the separate property state spouse would put in column E all of their income taxable by California (which in your case is 0 since it's all Oregon income of an Oregon resident) plus half of the other spouse's income taxable by California (which is again 0 because the California spouse has no income).
Again, if it were the other way around (California spouse has income and Oregon spouse doesn't), then the California spouse's income would be half each spouse's income, so all of the income would be taxed in California but half also taxed in Oregon, and they can take a credit for that half on the California return.
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I agree with you. however I heard cases where CA FTB looks at intent of non-california spouse to move back.– cyborgt8Commented Jun 4 at 0:17
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The person earning the income is domiciled in Oregon, a non-community-property state, so all of that income is solely that person's income, and it is not half the other spouse's income. Therefore, the California spouse has no income - no, that's not how communities work. You can't deprive your spouse of property and income just by moving away. The Oregon income is quasi-community. You're confusing tax sourcing rules with family law attribution rules. Commented Jun 4 at 0:33
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@cyborgt8 that's a question re determination of residency. CA FTB is in fact quite aggressive in asserting residency and having spouse remaining in the state is a strong signal of your intent to return and as such remaining resident. But it didn't sound like that's what you're asking about, both my and this answer assumed you're asking about community property split. Commented Jun 4 at 0:38
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If you read the comments here, I recommend you to read my comments under littleadv's answer. I believe littleadv's comments here are based on an incorrect understanding of the law. Specifically, quasi-community property is a concept that only take effects only when both spouses are domiciled in CA at the time they divorce or die. They may have moved out of CA before they divorce or die. Hence, quasi-community property rules don't change who owns the property.– xuhdevCommented Jun 4 at 6:25
If filing MFJ at federal level, and MFJ at state, does the joint filers has to pay the taxes for the income earned in Orgeon ?
Yes.
How about MFJ at federal and MFS at state (because the husband doesn't have California sourced income and has lived out of California whole year) , does the California spouse have to pay taxes on the Oregon spouse's income.
This is a more interesting case, and may require a professional assistance (a lawyer probably). Basically, you're asking whether the community property rules of California marriage apply to income outside of California. They do, generally, and my understanding is that even if the husband is in Oregon, California family law applies due to wife's California residency. But as I said - you'd probably need a professional opinion.
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California family law do you have any reference like FTB pub? I'd think it should not because Publication 1031, section "How To Split Income on Form 540NR" (page 13) would not serve any purpose.– cyborgt8Commented Jun 4 at 0:15
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@cyborgt8 right... read it carefully. FTB is not in the business of enforcing family laws, only tax laws. But what the rules on that page say (especially case #4, relevant to your situation) is that the income is still split between the spouses. Commented Jun 4 at 0:31
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I'm not sure if I can agree with the second answer. The husband residents and is domiciled in Oregon, so Oregon family law applies to the husband's earned income in Oregon. Since Oregon is a common law state, the husband owns all those income. This is the end of analysis. California law doesn't apply in this regard.– xuhdevCommented Jun 4 at 2:50
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@littleadv quasi-community property is a different concept. Quasi-community properties, as defined by California law, are only treated like community properties upon divorce or death only if at that time the person is domiciled in CA. It's well possible that the spouses are both out of CA at that time. For tax purposes, likely the present interest is also not treated as community property either.– xuhdevCommented Jun 4 at 3:15