Hello. My wife and I currently live in Oregon a state with extremely high state taxes. However, I may take a job in Washington where the are no state income taxes. Is it possible to file our federal taxes jointly and state separately? I mean, it seems pretty unfair that I should have to pay Oregon state taxes if I am not living there. At the same time, the federal taxes really screw married people filing separately. What should we do?
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You'll move to Washington and she'll stay in Oregon? In that case you should each file taxes where you live. On the other hand, if you're planning to commute from your existing joint home in Oregon and just pretend you live in Washington, well, I wouldn't do that.
My understanding is that filing separately isn't a problem if your incomes are the same, and becomes more of a problem the more one makes than the other. So filing separately isn't necessarily bad. I don't do returns, so I may be way off base, so let me know if this doesn't make any sense. First, it probably depends on state law whether you can file differently for federal and state purposes. In California I believe you have to do it the same for both. But the thing I'm thinking of is that Washington is a community property state, meaning that half your earnings there automatically belong to your wife as if she had earned them. If you file separate returns you each may be able to claim half the Washington income for federal tax purposes. Stu
Oregon has no sales tax, so you might want to re-think the "extremely high" description (said the California resident who pays 8.25% sales tax). Oregon does allow spouses who are residents of different states to use a filing status on their state return different from federal -- see the oregon.gov web site. However, if your wife and other family members remain in Oregon, if you have real property there, if you maintain bank accounts and other ties there, if you spend more than
30 days a year there, you will have a very hard time showing you are not still an Oregon resident and subject to Oregon income tax. Also note that if you change your domicile to Washington (domicile and residency are two different but related concepts) your wage income will be subject to community property rules, meaning half of it will be taxable to your wife on her Oregon resident return. Spouses filing as residents of different states are advised to consult a professional tax adviser, at least the first year.-Mark Bole
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