Unemployment in Community Property State

So I have a MFJ return with over 150k on it not including the husband's 8k of unemployment.

We are putting it on extension.

Thought I understood it but now questioning myself (again!).

We have agreed that unemployment is community property. Some have argued that the IRS wording "received by" means that we can only exclude the unemployment actually received by the taxpayer - not unemployment allocated under community property rules.

So we split the return to get under the 150k threshold. We show 4k unemployment on each return. Can we then only exclude 4k on the husband's return since the wife did not "receive" the unemployment?

Ugh.

So we split the return to get under the 150k threshold. We show 4k unemployment on each return. Can we then only exclude 4k on the husband's return since the wife did not "receive" the unemployment?

Or is the husband's 8k reduced by the exclusion, and the zero balance is then split?

The example cited by Coles Law is not for community-property state.

Anything received in a community-property state is received by the marriage "community" not an "individual".

Spidell is correct.

So Mariaku- Husband gets 24k of unemployment, wife has no unemployment. Total income 100k. Are you saying they can file a MFJ return and exclude 20,400? Thanks for your thoughts.

The example cited by Coles Law is not for community-property state.

Then why did Coles Law say this?

Husband's share = $4,900
Wife's share = $4,900

Anything received in a community-property state is received by the marriage "community" not an "individual".

No, it's not. Distributions from an IRA aren't. Social security benefits aren't. If your theory is correct, can you cite some authority?

EZTAX: This is exactly what I'm saying. Unemployment payments are community-income. If you were to prepare a MFS tax-return in CA, you'd split "all" income 50/50, unless it was specifically maintained as a "separate" income.

Anything received in a community-property state is received by the marriage "community" not an "individual".

No. The answer (as to whether an item received during marriage is community income or separate income) depends on the law of the state.

Examples from Texas community property law (these are from my notes from about ten years ago, so I don't know whether the law has changed).

1. Gain on sale of separate property personalty during the marriage -- such as an automobile acquired by one spouse prior to the marriage -- would generally be the separate income of the spouse who owned the separate property, assuming that the gain is spontaneous and independent of assistance from the community.

2. Gain on a sale of separate property real estate during marriage would generally be separate income of the spouse who owned the property. Again, this assumes that the gain is spontaneous and independent of assistance from the community.

3. Funds or other property acquired by one spouse to compensate for personal injury to that spouse during the marriage would be the separate income of that spouse. However, compensation for loss of earning capacity during the marriage would be community income.

4. Oil and gas royalty income or "bonus" from separate property mineral interests during the marriage would be separate income of the spouse who owns the mineral interests. (But, rent income and delay rental income from the separate property mineral interests would be community income.)

5. Funds or other property acquired by only one spouse during the marriage by inter vivos gift, or by will, or by intestacy succession would be the separate income of that spouse.

Note: In Texas, you have to consider that there is a legal presumption that anything acquired by either spouse during the marriage is community income. However, that's just a presumption -- that is, a rebuttable presumption.

We have agreed (most of us) that unemployment is considered community property in California.

The question is if the unemployment exclusion necessarily applies to the unemployment received through the community property allocation - that is, if only one spouse received the unemployment are you allowed an exclusion of $10,200 x 2.

Spidell has at least clarified that this is open to debate and are now recommending that those in this situation file extensions. At least that is my understanding from reading their message board.

Hang in there everybody!

Spidell is correct.

Nah

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I am ready to retire.

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Thanks Coles Law. David Fogel use to post here - he is greatly missed. Excellent write up.

Spidell is wrong. To get the exclusion, the spouse must have “received” the UI. This is the word used in the statute. UI is community income, and it must be reported 50/50 by each spouse because each spouse has a vested interest in the income. But strictly speaking, if Spouse A receives UI and Spouse B doesn’t, Spouse B doesn’t get an exclusion for his or her half.

Spidell has modified its position. It is now saying that where Spouse A receives UI and Spouse B doesn’t, the exclusion for Spouse B’s community income share shouldn’t be claimed on the original return. Spidell is now saying that either the return should be extended to wait for IRS guidance on this issue, or to file an amended return later to claim the exclusion for Spouse B’s share. This is from the posts in several threads on Spidell’s message board.

This horse isn't dead yet.. lets beat it some more:
MFJ income of 152,000
He got 20,473 with 2,023.00 withholding in UI,
She did not receive any UI.
Nevada Community property state.

If Income is split 50/50 I get below the 150k per return threshold so at least 10,200 can be excluded.
AND I get that whole "received" issue so I did an override to not exclude UCE on HER 1/2 of the 20,473
DO I SPLIT THE WITHHOLDING AS WELL? put 1,012 on each return?

Wait - think I just typed myself into the answer.. it won't matter since they are together.. she will just get that on hers..

I hate this year.. but - any contrary or note like thoughts?

He got 20,473 with 2,023.00 withholding in UI

Exclusion is $10,200. so taxable UI is $10,273. Split that and the W/H and report half on each return. Use Form 8958.

Thanks Coles Law. David Fogel use to post here - he is greatly missed. Excellent write up.

I worked with David to file a couple of tax court cases. He is amazing to work with. I was just wondering if he is still around.

I filed a 2020 amended TR for a client to change filing status from MFJ to MFS to get unemployment to be excluded up to the $20,400 amount (community prop state). The amended returns were received by the IRS on 5/10/21, before the 5/17/21 deadline. The client just got a letter saying they are denying the claim for refund as the claim was received after the original due date (they must be referring to 4/15/21).

Am I wrong in thinking that the original due date of the 2020 return was moved back to 5/17 from 4/15 and, therefore, had another month to file the amended returns? Is the IRS correct here? Am I missing some technical angle on this of what the original due date means?

I intend to send a letter in response reminding the IRS of their own due date but want to confirm that I'm not missing something here. If I am wrong, I don't want to embarrass myself even more. Help greatly appreciated!

Here is the verbiage from the IRS website about the change of filing deadline.
https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline

...automatically extended from April 15, 2021, to May 17, 2021.

If the IRS is considering this an extension (automatically given to everyone with no action on their part), rather than a change of the actual due date, then the change from MFJ to MFS wouldn't be allowed after 4/15/2021. Regrettably, they may be right.

Thank you for your help Joan.

SF CPA. I am a TX CPA (Community Property state). I had a new client come in this year. Had prepared his own 2020 return. I noticed in his documents a letter from the IRS concerning a refund for 2020. When looking at it, I noticed that they (client) had not apportioned the unemployment income 50-50 to husband and wife. Husband was only recipient. IRS, ON THEIR OWN, saw the community property error and fixed it with a check. So, bottom line, an amended return to MFS is NOT necessary to get the benefit in my opinion. You just need to amend how it was presented on the MFJ return to the CORRECT way of claiming it to begin with. I would also be sure to verify with your client that IRS had not already fixed this and they did not realize it (by missing refund, etc.).