If you are married at any time during the calendar year, special rules apply for reporting certain community income. To qualify for these rules, you must meet all the following conditions:
- Living Apart: You and your spouse lived apart all year.
- Separate Returns: You and your spouse didn't file a joint return for a tax year beginning or ending in the calendar year.
- Community Income: You and/or your spouse had earned income for the calendar year that is community income.
- No Transfers: You and your spouse haven't transferred, directly or indirectly, any of the earned income in condition (3) between yourselves before the end of the year. Transfers satisfying child support obligations or transfers of very small amounts or value are not considered.
If all these conditions are met, you and your spouse must report your community income as outlined below:
Types of Income and Reporting Rules
- Earned Income: Treat earned income that isn't trade or business or partnership income as the income of the spouse who performed the services to earn the income. This includes wages, salaries, professional fees, and other pay for personal services. Earned income doesn't include amounts paid by a corporation that are a distribution of earnings and profits rather than a reasonable allowance for personal services rendered.
- Trade or Business Income: Treat income and related deductions from a trade or business that isn't a partnership as those of the spouse carrying on the trade or business.
- Partnership Income or Loss: Treat income or loss from a trade or business carried on by a partnership as the income or loss of the spouse who is the partner.
- Separate Property Income: Treat income from the separate property of one spouse as the income of that spouse.
- Social Security Benefits: Treat social security and equivalent railroad retirement benefits as the income of the spouse who receives the benefits.
Other Income
Treat all other community income, such as dividends, interest, rents, royalties, or gains, as provided under your state's community property law.
Example Scenario- Disregarded Community Property Laws
George and Sharon were married throughout the year but didn't live together at any time during the year. Both domiciles were in a community property state. They didn't file a joint return or transfer any of their earned income between themselves. During the year, their incomes were as follows:
- George's consulting business: $26,500
- Sharon's salary: $34,500
Under the community property law of their state, all the income is considered community income. Ordinarily, on their separate returns, they would each report $30,500, half the total community income of $61,000 ($26,500 + $34,500). However, because they meet the four conditions listed earlier, they must disregard community property law in reporting all their income (except the interest income) from community property. George reports $26,500 and Sharon reports $34,500.
On the 8958 form, you can allocate the income as it was earned and enter a $0 for the other spouse as needed.
Other Separated Spouses
If you and your spouse are separated but don't meet the four conditions discussed earlier, you must treat your income according to the laws of your state. In some states, income earned after separation but before a decree of divorce continues to be community income. In other states, it is separate income.