Discussion:State taxes for Couple working in different states, CA and Washington.

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Discussion Forum Index --> Advanced Tax Questions --> State taxes for Couple working in different states, CA and Washington.

Discussion Forum Index --> Tax Questions --> State taxes for Couple working in different states, CA and Washington.

Apriti (talk|edits) said:

14 May 2009
I am filing taxes for a couple who were both California residents.

In early June 2008, the wife moved to Washington state. The maintain residences in both states and fly to meet each other. Husband has only CA income Wife has CA and Washington income.

We were planning to file a joint Federal Tax return. Both states are community property states and CA law doesn't allow them to file seperately either, since wife had some CA income. WA doesn't have state taxes, so they cannot take advantage of state tax paid credit.

Would they have to pay state tax even for income earned in WA ?

Also for 2009, wife will not have any CA income, would they have to file MFS for CA, and then use community property rules to divide income. Even after that won't the wife have to pay CA taxes on the income she got from her husband because of his sharing ? and Husband will have to pay tax on all his and the income he got from his wife. If they made equal amounts, then husband would have to pay CA state tax of his share of income and the income he got from his wife. Wife would have to pay CA tax of the share she got from her husband.

Am I missing anything ?

Wonder Woman USA (talk|edits) said:

14 May 2009
As long as wife is a California resident, and they maintain their marriage, then community property rules apply AND it's all subject to California tax.

It would be really nice if you would fill in your profile, so we have some idea of whom we are talking to!

Apriti (talk|edits) said:

14 May 2009
Thanks for your reply.

The wife can give up her California residency if it is doable as long as they are still married. but for 2008, she still stays a part year resident.

P.S. I am sorry for delaying to fill my information. I have done so now  :)

Trillium (talk|edits) said:

14 May 2009
Have you read this discussion: Community property resident with NR spouse, from a couple of weeks ago?

Apriti (talk|edits) said:

15 May 2009
Thanks for that link. The case will be identitical for 2009 tax year.

KatieJ (talk|edits) said:

15 May 2009
Apriti, in the discussion Trillium referred you to we didn't address the question of the resident status of the spouse who was working in Washington; we just assumed, for the sake of the discussion, that he or she was a WA resident, which may or may not actually have been the case. You don't become a nonresident of California by "giving up" your California residence.

California law defines a resident as a person who is either present in California for a purpose that is not temporary or transitory (regardless of domicile), or domiciled in California and absent for a temporary or transitory purpose. CRTC Sec. 17014. A California domiciliary who is absent for a purpose that is not temporary or transitory is a nonresident.

Generally, accepting a common-law employment position that may last indefinitely is considered not to be a temporary or transitory purpose. In addition, there is a safe harbor provision in California law (CRTC Sec. 17014(d)) under which a person who is absent from the state on an employment-related contract for an uninterrupted period of 546 days (18 months) is considered absent for a purpose that is not temporary or transitory, and hence a nonresident. The period of absence is uninterrupted if the individual spends no more than 45 days of the taxable year in California. Under either the safe harbor or the general rule, it may be reasonable to treat her as a nonresident of California from the time she arrived in Washington to take up employment there. Of course it depends on all of the facts and circumstances and the intentions of the parties involved. She probably is still domiciled in California, but if she is absent for a purpose that is not temporary or transitory, she is a nonresident for tax purposes.

If she is a nonresident and he is a California resident working in California, this couple will never be able to file separate California returns if they file joint federal returns, because she will always have California source income -- viz., her community 1/2 of his California earnings. Unless the nonresident spouse is a full year nonresident and has NO California source income, California filing status must match federal. In the absence of an interspousal agreement to the contrary, current earnings are community income unless the couple has separated with no intention of resuming the marital relationship.

Assuming he is a resident and she is a part-year resident (2008) or full-year nonresident (2009), they will be required to file a joint California return on Form 540NR. Schedule CA-540NR, Col. E (California source income) will include all of his California earnings plus his community 1/2 of her Washington earnings. It will also include his community 1/2 of any community intangible income (interest, dividends, capital gains from intangibles) but not her 1/2. It will include 100% of any other California source income (e.g., income from California real or tangible personal property, or from business activities in California), plus his community 1/2 of any such income from non-California sources, and all of his separate income, if any, from any source.

Apriti (talk|edits) said:

29 May 2009
KatieJ, good point about 1/2 of community intangible income.

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