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MFS in Community Property State

mountaintax
Level 2

I have read every question asked so far regarding MFS in a Community property state but still can't seem to find the answer. Everyone says fill out form 5958 (which I have done) to properly allocate the income but this does not flow to the 1040. No one addresses how & where to properly report the other spouses income. MFS, In CA. Husband is the only one that works. I have filled out Form 5958 and split all income 50/50. I entered the complete W2 into the husbands return and I adjusted box 1,2, state tax and SDI (left other entries alone). If I enter the husbands W2 on the wife's return with half of the income I get a critical error because the W2 is for him. It does not make sense to put the spouse's W2 on the taxpayers return but that is what ITO chat advised. How else/where else can I input half of the husband W2 income and half of his taxes paid onto the wife's return?? Also, what do I need to do with the CA return? Lastly, on his return do I split all the other entries on the W2 or just box 1 & 2, state income tax & SDI? Thank you for your help!

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Intuit_Devin
Employee
Employee

Use "Other Income" adjustments to add/back out wages, not W2. (Used to be line 21, but now well hidden thanks to the Form 1040 "simplification" this year...just search "Other" and you should be able to locate the Other Income Statement. Find a blank line and enter a negative adjustment for half the wages on the wage-earners return, using a description like "Community property wages allocated to spouse (SSN: xxx-xx-xxxx)". On the spouse's return, same thing but a positive adjustment and "from spouse" instead of "to spouse" in description.

Withholding is tougher because, as you've noticed you'll encounter EF errors when creating a W2 for somebody who didn't receive one. The method that seems to work best is to use the Tax Payments Worksheet (again, just search for the name). Around line 18 there's fields to enter "other withholding" for federal and state tax. Use that for the spouse's return. On the wage-earners return, you can just enter half the withholding amount on the W2 and it should be fine.

That said, some preparers encounter problems with the IRS "correcting" the withholding adjustments, and sending unwanted refunds to the wage earner and demanding payment (plus a penalty) from the spouse. Use your discretion, but what some have chosen to do is leave the federal withholding alone, request a waiver of the estimated penalty for the non-earning spouse, and get a big refund for the wage earner. Not a recommendation, just an option.

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7 Replies 7
JimmyM
Employee
Employee

You need to complete the following information in the the spouses copy of the taxpayer's W-2 along with their 1/2 of the income, SDI, and withholding:

Employee Information (if different than client information) - put the taxpayer's (husband's) information in for name and address. I believe this will solve your issue.

mountaintax
Level 2

If I only put the husbands name and address in I am ok. If I put his SSN in I get a critical diagnoatic that the w2 has a different SSN than the taxpayer. 

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Intuit_Devin
Employee
Employee

Use "Other Income" adjustments to add/back out wages, not W2. (Used to be line 21, but now well hidden thanks to the Form 1040 "simplification" this year...just search "Other" and you should be able to locate the Other Income Statement. Find a blank line and enter a negative adjustment for half the wages on the wage-earners return, using a description like "Community property wages allocated to spouse (SSN: xxx-xx-xxxx)". On the spouse's return, same thing but a positive adjustment and "from spouse" instead of "to spouse" in description.

Withholding is tougher because, as you've noticed you'll encounter EF errors when creating a W2 for somebody who didn't receive one. The method that seems to work best is to use the Tax Payments Worksheet (again, just search for the name). Around line 18 there's fields to enter "other withholding" for federal and state tax. Use that for the spouse's return. On the wage-earners return, you can just enter half the withholding amount on the W2 and it should be fine.

That said, some preparers encounter problems with the IRS "correcting" the withholding adjustments, and sending unwanted refunds to the wage earner and demanding payment (plus a penalty) from the spouse. Use your discretion, but what some have chosen to do is leave the federal withholding alone, request a waiver of the estimated penalty for the non-earning spouse, and get a big refund for the wage earner. Not a recommendation, just an option.

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mountaintax
Level 2

Thank you for the clarification!!!

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mountaintax
Level 2

I am getting a diagnostic that I need to paperfile the state return. Do I need to include form 8958 to the state return?

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IntuitAustin
Intuit Alumni

Take a look a the filing instrctions to see if it is required with the paper-file for that particular state 


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capattie4
Level 2

Great Answers! Now for 2020 I can't find the "tax payments worksheet" so I had to make an adjustment to the withholding on the W2 form. I would prefer not to - can you explain where I can find the editable worksheet? 

Thank you

Pattie 

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