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Split wages and withholdings in a community property state

Going back in its long history, state community property laws were justified by the pragmatic recognition that such joint ownership recognizes the theoretically equal contributions of both spouses to the creation and operation of the family unit, as a basic component of a civil society. Currently there are only nine states which are considered “community property states”. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. With only nine out of fifty maybe that explains why there is so much uncivility today? Well, I don’t think so, but we can always use more civility no matter where we live, right?

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These are states in which the law considers each spouse as technically owning an undivided one-half interest in most property acquired by each spouse during the course of the marriage. And that concept goes so far as to even includes the wages of each spouse. So, if for whatever reason a married couple files their taxes separately in a community property state (and there can be legitimate reasons), even the wages are split 50/50. Not only the gross taxable wage amount, but the income tax withholdings as well. But what about the Social Security and Medicare withholdings?

There are a lot of quirks and complexities in MFS in a community property state. One is that while the taxable wages and income tax withholdings are split, the Social Security and Medicare tax withholdings are still considered credited only to the spouse who earned the wages. And that override in community property income treatment carries over to calculation of the self-employment tax as well. So even when you have to split the self-employment income of married spouses filing separately, the self-employment tax stays with the spouse who earned the income. Does all this help make us a more civil society? I don’t know but we could probably use all the help we can get!

If you have any questions contact a Henry+Horne professional for more information.

Dale F. Jensen, CPA

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