Discussion:Spouses working in different states (CA & NY)

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Advanced Tax Questions --> Spouses working in different states (CA & NY)


Discussion Forum Index --> Tax Questions --> Spouses working in different states (CA & NY)

Lalva (talk|edits) said:

2 November 2007
The husband works in NYC, the wife in CA. They rent a house in CA and an apartment in NYC. They travel back and forth to see each other. My question has to do with California being a community property state.

What is the best way to handle this? There is going to be one fed return, one California resident and one NY resident return, but is all the income going to be included in the state returns? It looks like there is going to be double taxation. Do you think that MFS is the best option? I guess I will have to run the numbers each way to find out. Does anyone have any suggestions?

This is so confusing! Thank you for your help.

Dennis (talk|edits) said:

2 November 2007
NY will allow separate returns if one spouse is non-resident, even if MFJ Federal.

WesR (talk|edits) said:

2 November 2007
Hi maybe lalva doesnt know you get a tax credit in the resident state for the nonresident state taxes? bye

Hrbemp (talk|edits) said:

2 November 2007
Sounds like my clients, same living and working arrangements. I knew that I could file a separate NY return, but I was not certain about CA. I sent an inquiry to CA for assistance, the following is the response that I received back. I hope this helps...

Thank you for visiting the FTB website. Please accept our apology for the delay in responding to your e-mail.

For California purposes, the taxpayer must use the same filing status that he or she used on the federal return for the same tax year.

Exceptions: There are two exceptions to the above rule:

Either spouse is an active duty member of the armed forces. Either spouse is a nonresident for the whole year and had no California source income. Please visit our website again if we can be of further assistance.

Michael, Station 1187 We value our customer's feedback; please take a few moments to complete our survey. http://www.ftb.ca.gov/websurvey/icorr

Gmikeg (talk|edits) said:

2 November 2007
Gotta love the CA FTB, their returns make the 1040 look like Romper Room.

Anyway, file jointly and make sure to split out the income on the appropriate forms for NY and CA.

Good luck,

Mike G., EA

Lalva (talk|edits) said:

3 November 2007
Thank you all.

I don't think I can do what Gmikeg says since CA is a community property state. Now that I think about it, in the CA return I can enter half of each spouses income, and on the NY return I will enter only the NY income. Is that right?

Gmikeg (talk|edits) said:

3 November 2007
Given that I'm in NM, also a community property state, and originally from NY, I may be as confused as you. Let me ask: do both spouses live in CA or NY, or why are they married.......?

Anyway, just go with the above statement I made earlier, and you should be fine. I will gladly conceed to a higher authority....Like Riley2, etc....

Mike G., EA

Gmikeg (talk|edits) said:

3 November 2007
Actually, what each person made in each state is taxable to that state only, period.

Mike G., EA

KatieJ (talk|edits) said:

4 November 2007
No, Mike, you are wrong about that. It all depends on where each spouse is domiciled. We don't have enough information to know that.

The division of income between spouses is determined in accordance with the laws of the domicile of each of them. If both spouses are domiciled in CA, then all of their income (current earnings, anyway) is community income and must be split 50-50 on BOTH the CA AND the NY returns. If both spouses are domiciled in NY, then all of their income is separate income, and each will report only his or her own income. If the CA resident spouse is domiciled in CA, then his or her earnings are community income and are split 50-50 on both returns; the NY resident/domiciled spouse's income is not split because it is that spouse's separate income.

The domicile issue is a factual one. We would need to know the history of this couple, where each was domiciled at the time of their marriage, whether they have ever maintained a home together and where that was and for how long, what are the circumstances of their current separation, etc., etc.

Here is a typical definition of domicile (from Calif. Reg. Sec. 17014):

"Domicile has been defined as the place where an individual has his true, fixed, permanent home and principal establishment, and to which place he has, whenever he is absent, the intention of returning. It is the place in which a man has voluntarily fixed the habitation of himself and family, not for a mere special or limited purpose, but with the present intention of making a permanent home, until some unexpected event shall occur to induce him to adopt some other permanent home. Another definition of “domicile” consistent with the above is the place where an individual has fixed his habitation and has a permanent residence without any present intention of permanently removing therefrom.

"An individual can at any one time have but one domicile. If an individual has acquired a domicile at one place, he retains that domicile until he acquires another elsewhere. Thus, if an individual, who has acquired a domicile in Illinois, for example, comes to California for a rest or vacation or on business or for some other purpose, but intends either to return to Illinois or to go elsewhere as soon as his stay in California is completed, he retains his domicile in Illinois and does not acquire a domicile in California, even though he maintains a home here, has his family with him, and remains here a considerable period of time. Likewise, an individual, who is domiciled in California and who leaves the State retains his California domicile as long as he has the definite intention of returning here regardless of the length of time or the reasons why he is absent from the State.

"On the other hand, an individual, domiciled in Illinois, who comes to California with the intention of remaining here indefinitely, and who has no fixed intention of returning to Illinois, loses his Illinois domicile and acquires a California domicile the moment he enters the State. Similarly, an individual domiciled in California, who leaves the State, loses his California domicile the moment he abandons any intention of returning to California and locates elsewhere with the intention of remaining there indefinitely."

Generally, married couples have the same domicile unless they are estranged. However, neither spouse gets a new domicile solely by virtue of marrying someone with a different domicile. So where the spouses in this case are domiciled depends on their history and future intentions.

Lalva (talk|edits) said:

8 November 2007
Thank you all for your help.

Mike, you have to add KatieJ to your higher authority list.

Katie, I really appreciate how generously you share your wisdom. A little more information. the husband lives now in NYC. For his line of work, it's just easier to find work there (radio producer). His wife is working in CA. They both travel regularly to see each other. To me it looks like the husband is domicilied in NYC, and the wife in CA. Just to make sure I got it. It looks like they are going to file MFJ for fed, MFJ for CA (all income, right?), and MFS for NY (only NY income). And they will claim a credit in CA return for the taxes paid in NY. THANK YOU AGAIN!!

Riley2 (talk|edits) said:

9 November 2007
Lalva, I agree that the wife is probably domiciled in California. Thus, you would include 100% of her income on the California return since it was earned in CA, but none of his income would be included on the CA return. In addition, 50% of her earned income would appear on the New York return since 50% of her income is property of her husband, who is a NY resident.

Lalva (talk|edits) said:

9 November 2007
Oh! Riley, Can you please elaborate a bit more? How can that be if CA is a community property state and NY is not??? It's not that I disagree with you -God forbid-, I just don't get it. To me it will be the other way around.

KatieJ (talk|edits) said:

12 November 2007
Riley is assuming that W is domiciled in CA and H is domiciled in NY. (This may or may not be the case; I still don't have enough information to express an opinion one way or the other.)

If that is correct, then they must file jointly in CA if they file a joint federal return, because although H is a full-year nonresident, he does have CA source income -- viz., his community 1/2 of W's CA earnings. On the CA return, tax is calculated on the entire income of both spouses as if both were full-year residents, and then prorated by the ratio of CA taxable income to total taxable income. CA taxable income (Schedule CA-540NR, Col. E) includes ALL of W's income, regardless of source, plus H's CA source income. Assuming no income other than current earnings, Col. E includes W's 1/2 plus H's 1/2 of W's earnings. It does not include any of H's NY earnings.

H would file a full-year resident return in NY, MFS. His income includes his NY earnings, plus his community 1/2 of W's California earnings. NY will give him credit for the tax he paid to CA on his community 1/2 of W's CA earnings.

Even in a separate filing state, income that is community income under the laws of a CP state is divided in accordance with the laws of the state of the spouse's domicile. See, e.g., Keller v. Dept. of Revenue, Oregon Tax Court, No. 1394, 9 OTR 67 (1981), where Oregon, a separate property state, taxed a resident spouse's community 1/2 of her Washington domiciled husband's earnings and under Washington law, 1/2 of his earnings immediately vested in his wife.

However, it is true that many practitioners would report only H's own income on his NY return. Since NY would allow credit for the CA tax, which is likely to be at least as much and possibly more than the NY tax on that income, it probably doesn't make any difference to NY at the bottom line (revenue-wise) whether you included it or not.

Lalva (talk|edits) said:

12 November 2007
I think I got it! Of course, Riley was right:)

Thank you very much Katie for sorting this out, you are awesome!!!!

To join in on this discussion, you must first log in.
Personal tools