IRS Publication 555 Community Property outlines the requirements for filing the federal tax return for married filing separate spouses, California or Washington same-sex spouses, or registered domestic partners (RDPs) domiciled in Nevada, Washington or California. See the publication for additional details and definitions.
TaxACT supports the completion of these returns so they can be electronically filed. Below is a summary of the 3-step process to file these returns using the TaxACT software. These instructions are to be used in conjunction with the information provided in IRS Publication 555.
Gather all documents received from employers, financial institutions, etc. that report income or deductions for either partner. Use IRS Publication 555 to determine if each item would qualify as community income/deduction or separate income/deduction. Unfortunately, there is not a way for the TaxACT program to calculate this allocation between the returns automatically because the two returns are not linked in any way. This is true whether the taxpayers are married or registered domestic partners (RDPs) or same-sex spouses, and whether the filing status is Single, Head of Household, or Married Filing Separately. Each taxpayer must determine the applicable split of income and deductions and then enter the appropriate amount in the federal program for their own return.
Separate income/deduction is generally income/deductions from separate property, and will only be entered on the return of the partner the income/deductions belongs to. Separate property is:
- Property that you or your spouse (or RDP/California or Washington same-sex spouse) owned separately before your marriage (or registered domestic partnership/same-sex marriage in California or Washington).
- Money earned while domiciled in a noncommunity property state.
- Property that you or your spouse (or RDP/California or Washington same-sex spouse) received separately as a gift or inheritance during your marriage (or registered domestic partnership/same-sex marriage in California or Washington).
- Property that you or your spouse (or RDP/California or Washington same-sex spouse) bought with separate funds, or acquired in exchange for separate property, during your marriage (or registered domestic partnership/same-sex marriage in California or Washington).
- Property that you and your spouse (or RDP/California or Washington same-sex spouse) converted from community property to separate property through an agreement valid under state law.
- The part of property bought with separate funds if part was bought with community funds and part with separate funds.
Separate income. Generally, income from separate property is the separate income of the spouse (or RDP/California or Washington same-sex spouse) who owns the property.
CAUTION: In Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is community income.
Community income/deduction is generally income/deductions from community property and 1/2 will be entered on the return of each partner. Community property is property:
- That you, your spouse (or RDP/California or Washington same-sex spouse), or both acquire during your marriage (or registered domestic partnership/same-sex marriage in California or Washington) while you and your spouse (or RDP/California or Washington same-sex spouse) are domiciled in a community property state.
- That you and your spouse (or RDP/California or Washington same-sex spouse) agreed to convert from separate to community property.
- That cannot be identified as separate property.
Community income. Generally, community income is income from:
- Community property
- Salaries, wages, and other pay received for the services performed by you, your spouse (or RDP/California or Washington same-sex spouse), or both during your marriage (or registered domestic partnership/same-sex marriage in California or Washington).
- Real estate that is treated as community property under the laws of the state where the property is located.
IRS Publication 555 has additional detailed information and examples to help determine whether income/deductions should be treated as separate or community and how to calculate items that are figured without regard to community property laws (e.g. IRA deductions and the Earned Income Credit). Each partner will take their own exemption on their own return and can decide between themselves which partner will take any dependent exemptions. Note there is a section in IRS Publication 555 titled Community Property Laws Disregarded that does not apply to RDPs (or California or Washington same-sex spouses).
Complete each partner's return by entering the information as follows (each return will reflect half of all community income for both partners and all of the separate income for that partner):
Enter these items only in the return of the partner that you have determined the income/deduction belongs to. Enter the entire amount in that return.
Enter these items in each partner's return, entering only half of the amounts in each return.
Note that when community income is entered in the return, the Payer (or Employer) information will be entered as it appears on the form received. The Recipient name will be the name of the partner on the return the information is being entered on. For example, a W-2 received by Partner A will also be entered on Partner B's return (with only half of the amounts being entered). Partner B's name will appear on the W-2 in their return although it does not actually appear on the W-2 the employer issued. This is why the allocation worksheet on each return collects the information from both partners. The IRS is then able to match the total from both partners (e.g. for the W-2 forms) to the total of the W-2 forms received from the employers.
To enter W-2 income on each return (assuming there was a W-2 for each individual), generate two W-2s for the taxpayer on the return being completed. One should contain half of the taxpayer's W-2 entries (50%), and one should contain half of the partner's W-2 entries (50%). This second W-2 will be entered using the taxpayer's name, with the partner's employer information.
Follow the same method to enter the W-2 income on the partner's return.
In the TaxACT program, the Form 8958 Allocation of Tax Amounts Between Certain Individuals in Community Property States outlines how the amounts were allocated between the partners' federal returns. The information on Form 8958 (in the tax return being reviewed) will already be allocated to the taxpayer in column 2. The partner's amounts from their separate return will need to be entered in column 3 to complete the form. To complete the spouse column for each return:
- From within your TaxACT return (Online or Desktop), click on the Federal Q&A tab
- Click Miscellaneous Topics to expand the category and then click Community property allocation record (Form 8958). Note that if your address in the return is not within a community property state, you will not see the Community property allocation record (Form 8958) option after clicking on Miscellaneous Topics.
- Click Yes to enter/review the spouse information. Form 8958 will print with the return (and be e-filed with the return) once completed.
For registered domestic partnerships/same-sex marriage in California or Washington only: If domiciled in California, a separate TaxACT return must be completed with both partner's information entered on the federal return, and with the filing status of Married Filing Jointly. Do not file this federal return. Attach the California return to this federal return so the combined federal information will flow to the California return. File this California return. The combined federal return should equal the two federal forms that were completed for each partner separately. A copy of all three federal returns (and also the California return) should be maintained for documentation.