Montana resident married to WA resident

[Reeciekee]

Newly married couple in 2021.  One is working pharmacist who is resident of Washington State (input as "spouse").  Other is finishing pharm school in Montana and is a Montana resident & has been all of her life & has part-time job W-2s.  Filing MFJ for federal, but allowed to file MFS & spouse not filing (filing status 2c) for Montana.  I have filled in every box  & ticked everything I know, but Lacerte is still calculating the "spouse" wages (which are the WA wages) as Montana wages.  Any suggestions? 

[BobKamman]

So the Washington income is community property -- how does Montana feel about that?

[Reeciekee]

Instruction in the Montana Form 2 booklet on page 6 state:  Filing Status 2c - Married Filing Separately and Spouse Not Filing ---- You are a resident and your spouse is a nonresident who has no Montana source income.   Spouse lives in WA, earns his income in WA, so has no MT source income. So Spouse does not have to include his WA earned income in MT.

[qbteachmt]

Montana will not discriminate. It wants to tax everything. My father (a Lacerte user) had a California client who won the CA lottery, and moved to Montana, even though he pointed out the CA winnings were now totally taxable to Montana.

"every nonresident who is a single person, and every nonresident who is a married person who does not elect or, as provided in ARM 42.15.321, is not allowed to elect, to file a joint return with a spouse, must file a return if the person has any Montana source income or loss and their gross income from all sources is more than $4,370"

It's that "all sources" that gets you. When you file separately, you are allowed to separate the income and expenses pretty much however you want, when the funds relate to commonly held accounts or activities. Then, you enter any specific and segregated funds per that person to whom it applies, such as, if only one gets Unemployment or a W2, that goes to that person and is not split or shared. If you pay a deductible expense from a joint account, it can be split.

Once you do all of this, does your person still not meet the MT filing requirement? Do they have a tax computed, even if this is all counted?

[BobKamman]

But that doesn't answer the question.  Half the husband's WA income belongs to the MT wife.  Why should she escape taxation on it?

[qbteachmt]

"But that doesn't answer the question. Half the husband's WA income belongs to the MT wife."

MT filing separately means you can keep the husband's W2 in his column only. That's why I asked the question, not yet answered, if all that separating had been done, because perhaps now, the MT tax is 0 for the husband. Maybe there is nothing computed? Or, maybe he is considered to have earned a share of joint holdings, such as investment income? Or, they can split some deductible expense, such as HSA? But not individual IRA. Etc. Until that is reviewed and rebalanced, we don't know if there still is MT tax for the non-resident.

All we can do is offer suggestions, since we cannot see it for ourselves.

[qbteachmt]

I found a good explanation:

"Those filing separately must report adjusted gross income separately from the spouse. No income assigning is permitted.

Both spouses must declare their own employment income or income earned as an independent contractor.

You must report rent-generating property you own, property earning royalties, or dividend income that you receive. Unless there is an unequal percentage of ownership of any of the aforementioned items that are jointly owned by both spouses, you must equally split all rents, royalties, and dividend incomes between the two of you for tax purposes.

When married couples file separately, both may claim either the standard deduction or itemized deductions of their own."

[BobKamman]

Montana’s population is about the same as San Jose, in the community-property state of California. They obviously have “no comment” on questions about taxation of married couples with one nonresident spouse earning community income. You’re safe avoiding the issue, as long as they do also.

[qbteachmt]

It is called "equitable division" here.

[BobKamman]

"Equitable division" is a divorce-law concept, not a tax-law concept.  

[qbteachmt]

"not a tax-law concept."

It's in our income tax instructions, though.

[BobKamman]

Show me where the instructions include the word "community."  In Montana, ignorance is bliss.  

[qbteachmt]

"Show me where the instructions include the word "community." "

Bob, I have no idea who that reply is directed at. It can't be me, because I am in MT and we don't do "community property." That word "community" used like that, doesn't even exist in MT Form 2 Individual Income Tax Instructions.

This is my favorite instruction:

"Payments made from accounts owned by both spouses that pertain to expenses not attributable specifically to one spouse can be allocated to either spouse in any proportional amount."

[BobKamman]

I know you don't do "community."  You totally ignore it and pretend it does not exist.  You don't do whaling either, but if a Montanan works on a Canadian ship, you have to decide whether to tax it.  

[qbteachmt]

I'm sorry, Bob; I don't even understand your side of the discussion. It's not me that doesn't do community. It's not in the tax or legal or property codes here. And what does working on a Canadian ship have anything to do with anything? At the border, you stop and fill in paperwork because your work is subject to taxes and they won't even let you in without that paperwork. You've gone on some weird tangent, and are out there alone. Have fun.