Spouses working in CA and TX, allocating income for CA state tax

Since California is ALSO a community property state, it works the other way also. You each have half of the other's income. Looks like part-year-resident/non-resident returns all around.

It does make a difference what your intentions are. Are you and your wife separated with no intention of resuming your marital relationship? If so, under California law, if she is domiciled in California, her earnings are not community income.

Assuming you and your wife are not estranged, what are your plans for the long term? Is this long-distance marriage arrangement expected or intended to be indefinite? Generally, married couples who are not estranged have the same domicile, but it certainly is possible for each of you to have your own domicile even if not estranged.

Your domicile is your true, fixed home and permanent establishment; the place to which, whenever absent, you intend to return. You and your wife may both be domiciled in California or Texas, or each domiciled in your state of residence ... or you may both still be domiciled in NY, for all I know. Assuming you were both domiciled in NY before May 07, in order to change your domicile you must have met all of three requirements: (1) abandoned your previous domicile (moved away from NY); (2) moved to and resided in a new location; and (3) intend to remain in the new location permanently or indefinitely. Looking at each of you separately, it's possible that one of you has established a new domicile while the other is working temporarily in TX or CA and intends to join the other at some future time. Just taking a job in a new location doesn't necessarily establish a domicile there, although it is one fact to be taken into consideration. If one (or both) of you are working in your current location temporarily, no new domicile has been established and you're still domiciled in NY -- a separate property jurisdiction.

Since TX and CA are both community property states, Dieter is correct, if your domicile is in either of those states, and you are not estranged, your current earnings are community income and must be split 50-50 for California purposes. So California gets your wife's community 1/2 of your Texas earnings, and both halves of her California source earnings. Also you must file jointly if you file jointly for federal purposes, because you (the CA nonresident spouse) have CA source income.

Katie in San Diego

Thanks for your responses.

Katie, the problem I have is in determining, or being able to demonstrate, the specific state we intend to return to. We are not estranged, and our long-distance arrangement is currently indefinite, but we intend it to be temporary since one of us will return to the first state we can both find jobs in. This could be TX or CA, but I don't see a way to document or demonstrate this intent. As a result, I really can't determine the specific domicile based on "intent to return".

We have met the three requirements you mentioned to change domicile from NY, maintain no residence or other demonstrable ties there, and have no intent to return there. And since there's no way to demonstrate that one of us intends to move to join the other, it would seem that we could only claim to be domiciled in our current resident states.

Also, as your responses indicate, a domicile in either TX or CA would be equivalent for tax purposes. Even if my wife were to claim to be domiciled in TX, half of my income for the period she is resident in CA would still be taxable there. The only difference I can tell in this case is that we would be able to file MFS, but this doesn't seem to be a major advantage.

Please let me know if you think that claiming to be domiciled in our current resident states seems incorrect or inadvisable.

-Thound

You have one and only one domicile at any given time, and you do not acquire a new domicile until you abandon the previous one (starting with the one you acquire at birth).

The other subtlety is this: domicile and residence are not the same thing. The domicile of each spouse determines whether the community or separate rules apply to the income of that spouse. The residence of each spouse determines whether or not they owe tax on total income, including community income of the spouse, to the jurisdiction of residence. You always (potentially) owe tax on source income to the source jurisdiction. A spouse domiciled in a community property state with income in that state normally results in you having source income in that state.

Consulting a professional in this situation would be reasonable.

-Mark Bole

Have you left your home in Texas with no intention of ever returning to it? If not, you're still domiciled there.

Seth

The above sounds like you'll be taxed on more than you earn. Suppose TX had a state tax, then CA would tax the full amount of spouse1 who worked in CA, and half of the amount of spouse2 who worked in TX. Then assuming TX followed the same rules, then TX would tax the full amount of spouse2, and half of spouse1 who worked in CA. Suppose spouse1 made 10k in CA, spouse2 made 6k in TX; then CA would tax 13k, and TX would tax 11k (6+10/2). So 24k is subject to state tax, whereas income is only 16k. I'm pretty confused!

There would be a credit for the TX taxes paid on the money earned in TX.

Likewise, TX would allow a credit of the CA taxes for the amount earned in CA.

(Both credits would be limited to the amount the state granting them would have taxed that income.)

Seth

Seth has this right. Generally, a taxpayer who is a resident of state A and has income from a source in State B, the net tax liability (after credits) is at the higher of the two states' average rates for the taxpayer's filing status, income level, number of dependents, etc.

However, there are some situations where there is true double taxation, especially where an individual meets the definition of a resident (taxable on all income) in two states at the same time -- which does sometimes happen.

Katie in San Diego

Under the circumstances, considering yourselves domiciled in your current states of residence may be appropriate; but it doesn't appear that either of you has really settled with the intention of making a permanent home. Changing domicile is not just a matter of not intending to go back to the old place; it's a matter of moving to a new place with the intention of staying there. Until you've done that, your domicile hasn't changed -- and you are still both domiciled in NY.

It does make a difference because NY is a separate property jurisdiction. Retaining your NY domicile won't make you NY residents as long as you (a) maintain no place of abode in NY; (2) do maintain a place of abode somewhere else (in CA and TX respectively); and (3) have spent no more than 30 days of the taxable year in NY. The advantage of NY domicile is that CA would have no claim on any of your TX compensation.

I would advise you to get professional help with this, preferably from a tax attorney. Remember that free advice is worth what you pay for it .

Katie in San Diego