How do I allocate community income when I am married filing separately in a community property state?

Filing a tax return separately from your spouse is a little more complicated when you live in a community property state. These states consider most income and assets acquired during the marriage to be owned equally by both spouses, no matter who earns the income or whose name the property is titled in. Some types of income and assets are exempt from this treatment.

Community property states include:

If you are married filing separately and you live in one of these states, you must use Form 8958 (Allocation of Tax Amounts Between Certain Individuals in Community Property States) to help you determine how the income and assets that accrued to you and your spouse during the tax year should be allocated for tax purposes.

In other words, you might have earned more or less than half of the money, but you'll need to pay taxes on half of it. This form will help you reconcile the amount you earned with the portion of joint income you are responsible for paying taxes on. This is important because if you simply reported half of the total income you and your spouse earned over the year, that figure would most likely be in conflict with what your employers and others reported to the IRS.

You report all the different types of taxable income that you or your spouse received during the year on Form 8958. The form has three columns where you list the total amount and the amounts allocated to each of the spouses, respectively.

You can find additional information to help you properly allocate community income for your tax return in Publication 555, Community Property.

Community property for domestic partners

If you are in a domestic partnership, civil union or same-sex marriage legalized under your state's laws and you live in a community property state, you will need to allocate your income.

California, Nevada, Washington and Wisconsin are community property states that recognize these types of relationships. The federal government does not, although the IRS does recognize the community property laws of each state. Therefore, you might file your state return as married filing jointly, but both spouses will still have to file federal taxes as a single taxpayer (or head of household), using Form 8958 to properly allocate income considered community property under state law.

Do I have to report the spousal support (alimony) I received?

  • If your divorce was finalized on or after January 1st, you do not need to report or pay taxes on any spousal support you receive.
  • If you are paying spousal support as part of a separation or divorce agreement executed on or after January 1st, you may not deduct the amount you pay for spousal support from your taxable income.

The old rules for alimony

Spousal support, separate maintenance payments or alimony, as this type of support is commonly known, used to be counted as taxable income to the recipient. The separated or divorced spouse who received these payments had to include it in income, report it on annual tax returns and pay taxes on the full amount received over the year. The person who sent the payments could claim the amount paid as an above-the-line deduction that reduced their gross income subject to taxation.

Because the ex-spouse making support payments usually fell into a higher tax bracket than the recipient, having this money taxed at the recipient's rate often meant the total tax paid was lower than it otherwise would have been. The money saved on taxes allowed for higher support payments in many cases. However, this long-standing arrangement was reversed as part of the Tax Cuts and Jobs Act (TCJA) of 2017.

TCJA changes

Since TCJA became law, separated and divorced couples face a very different tax situation. No longer can payers of spousal support deduct the amount paid from their taxable income. Conversely, those who receive spousal support as part of a separation or divorce agreement signed after 2018 do not have to include those payments as taxable income or report them at all.

EXCEPTION: If the separation or divorce agreement was executed before December 1st, but modified after December 31st, spousal support can be subject to the new law if – and only if – the modified agreement expressly states that this is the case.

Revising or altering the divorce agreement may or may not affect the taxability of spousal support. If a divorce agreement is modified on or after January 1st, and the modified agreement specifically states that spousal support is not deductible for the payer or counted as taxable income to the recipient, then then any support included in the decree is subject to the revised taxability rules for spousal support. In that case, the support specified in the modified agreement is not taxable to the recipient and cannot be deducted from the sender's taxable income.

If the revised agreement does not clearly make such a statement, then the modified agreement is grandfathered into the older law and taxation continues as it had been conducted previously, with spousal support taxable to the recipient and deductible by the payer.

Important: The information above applies only to spousal support, not child support. Child support payments are never counted as taxable income or claimed as a deduction from taxable income.

 

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