How do I get Lacerte to evenly split Unemployment Compensation from Joint return into MFS return?

[Shedid]

I have a joint return where the spouse received unemployment compensation of approx. $15,000. Jointly the taxpayer AGI is about $260,000 due to $155k in L.T. C.G. Splitting the return into MFS creates a tax savings of around $3000 (with bringing each AGI below $150k & some LTG now taxed at 0% & w/the unemployment exclusion) . The taxpayer lives in a community property state and they do live together. How do I get Lacerte to split the unemployment? And does anyone know if each spouse will get $7500 exclusion on their separate return? Or does only the spouse who actually received it get $7500 unemployment excluded?  I have spent hours & hours on this and can't find anything. Please help.

[BobKamman]

Does Lacerte allow you to complete a Form 8958?

[Shedid]

Yes, it does allow me to complete Form 8958, but those numbers do NOT flow to anywhere in the actual tax return.  It is just a static allocation form.

[abctax55]

There's a long, long discussion on a different forum (with some very learned folks) debating whether the unemployment can/should be split on a MFS return in a community property state.  Given the uncertainty, I'm not filing any of the returns I have with the same fact pattern.   YMMV

[Shedid]

Thanks for the pointer! Would you be comfortable sharing the link to the forum? If not, would you keep this thread updated on any solid answers from that forum?

[George4Tacks]

https://proconnect.intuit.com/community/tax-filing-status/help/individual-mfj-vs-mfs-comparison/00/5...

and

https://proconnect.intuit.com/community/state-taxes/help/community-property-states-and-the-mfj-mfs-w...

This should get you started on the HOW, but not the whether there really is an advantage. IRS should make their position clear before the statute of limitations expires. 

[BobKamman]

A superseding return has to be filed on paper anyway, right?  It's probably faster just to start over with two new returns (don't try with a 1040-X).  

[BobKamman]

@George4Tacks "IRS should make their position clear before the statute of limitations expires."

And the Easter Bunny should leave you a basket full of gold coins.

[abctax55]

It isn't a public forum, and I will try to remember to post back here when there's a resolution.

[Shedid]

I appreciate your response. I checked out your links and I had already gone through those procedures and Lacerte still does NOT split the unemployment income as it should for a community property state.  And I double checked Lacerte's MFS vs. MFJ analysis of the tax savings of nearly $3000 and it is correct. It's just that Lacerte is not splitting the unemployment compensation between the two spouses.  Lacerte is keeping it on the return of the spouse who received the funds.  The question here is that Lacerte is not splitting the unemployment between the two spouses in a community property state.  Then, of course, the 2nd question is does the 10,200 get split between the two.

[Shedid]

A superseding return?  I have not filed the original return yet. ... that is what I am working on now.

[BobKamman]

@Shedid 

Is it splitting the other income -- wages, capital gain?

[Shedid]

Yes, it's splitting all but the unemployment.

[sjrcpa]

Could you split the unemployment into 2 entries - 1/2 for each?

[Shedid]

Manually?  I suppose I could manually split the unemployment into 2 entries, but then that would be incorrectly reporting the original recipient of the unemployment compensation.

[BobKamman]

On the ProSeries 1099-G worksheet, there are boxes at the top to check taxpayer, spouse or joint.  Do you have that for Lacerte?  Try checking joint.  

[Shedid]

In Lacerte, it defaults to taxpayer. You only have the option of entering a "1" for spouse.  There is a "2" to allocate, but it only lets you allocate if it is a State Refund.  Lacerte does not let me allocate the unemployment.  If I enter a 2 there, it simply will not allocate the unemployment and it gives me a diagnostic that it will only allocate state refunds.

[qbteachmt]

"The question here is that Lacerte is not splitting the unemployment between the two spouses in a community property state. Then, of course, the 2nd question is does the 10,200 get split between the two."

If you are trying to take advantage of the $10,200 exclusion per person who got the UI paid to them, and got reported on a 1099-G in their name, I think you'll have a hard time standing behind what would be an arbitrary split, based on being in a community property State, when it's the Feds that have the provision for the exemption per payee. Not per Spousal Split.

[abctax55]

@qbteachmt 

Community  property laws/allocations *can* be interpreted to do exactly that.

[qbteachmt]

"Community property laws/allocations *can* be interpreted to do exactly that."

That's likely not the issue, though. The issue I described is, did the Programmers provide for it? If their update to the program for the UI depends on the 1099-G info to match to the provision of "per payee" then perhaps there is no T/S/J provision in the program and no way to split it without some sort of manual override, 2x 1099-G entries (which isn't reality), etc. To the program, you are trying to do an arbitrary task, not one relative to the logic for the limit per payee.

[Shedid]

One would think that at the very least that I should be able to split the unemployment compensation because it is community property. Then,  get half the exclusion for the spouse that actually received the unemployment. 

[qbteachmt]

"Then, get half the exclusion for the spouse that actually received the unemployment."

But that's not how the provision was written.

The provision is for a $10,200 exclusion per payee that got UI paid to them.

[Shedid]

OK. (1st, if I was in the first place ABLE to split the community property unemployment between the spouses in Lacerte ...7500 each.) And if the provision is to be read that ONLY the spouse in a community property state receiving the unemployment gets the exclusion, then I should be able to allocate 7500 unemployment  to each and give 7500 exclusion to the actual recipient spouse and 0 exclusion to the nonrecipient spouse. Correct?

[BobKamman]

"the gross income of such taxpayer shall not include so much of the unemployment compensation received by such taxpayer (or, in the case of a joint return, received by each spouse) as does not exceed $10,200. "

The whole point of community property laws is that the income is received in equal shares by each spouse.  

[Shedid]

I am not sure of your point. Are you saying what I said in the original post? That if I could get Lacerte to split the $15,000 unemployment in the first place, then each spouse should get $5100 exclusion?

[BobKamman]

No, each spouse should receive the $10,200 exclusion (or $7,500, if that's what each received).  

[Shedid]

Only one spouse received unemployment of $15k. I am trying to allocate 7500 each on MFS returns because this would put them under the $150k limit each (where jointly they are over $250k) and MFS would save them about $3k (MFS lowers them to the 12%  bracket and allows some of the LTG to be taxed at 0%).  I would have a hard time believing that the IRS would allow the full 10,200 on each MFS return when only 1 actually received the unemployment.  If that were the case, I would think there would be a lot more MFS returns just to get more unemployment excluded.

[BobKamman]

Are you in a community property state?  This discussion seems to have veered into that issue, but maybe it's not your question.  

[Shedid]

YES! I am in a community property state.  This has been the whole issue the whole time starting from the original post: #1 I can't get Lacerte to split the unemployment on the MFS returns. #2 How does the exclusion work for the MFS returns?

[BobKamman]

@Shedid " I would have a hard time believing that the IRS would allow the full 10,200 on each MFS return when only 1 actually received the unemployment.  If that were the case, I would think there would be a lot more MFS returns just to get more unemployment excluded."

Mr. Seaborn had a hard time believing that the Bureau of Internal Revenue would not allow his community income to be split on separate returns, so he took his case to the Supreme Court before you were born, and won.  It's OK to be an IRS cheerleader but you're paid to prepare returns.  Don't think so hard, just do it.  Sorry you have to fight Lacerte in order to get there.    

[Shedid]

I'm not having a hard time believing that I Lacerte SHOULD allow me to be ABLE to SPLIT the unemployment. But to give each the spouse up to the full 10,200 exclusion when only one spouse received the unemployment is what I am having a hard time with.

"An IRS cheerleader"

LOL. Yeah, right. The last time I checked, 'thinking' is what my clients pay me to do.  I just wish it didn't hurt so much sometimes.  LOL.

[George4Tacks]

You can split the UI by using code 2 and .5 in the two spots right after the employer name. 

1 If Spouse, 2 If Allocate ('allocate' reserved for state refunds only)

General Information (Form 1099-G)

Screen 14; Code 1

Enter 1 if this 1099-G was issued to the spouse. If the 1099-G was issued for a state and local income tax refund, or a property tax refund, and you wish to allocate a portion of the refund to the taxpayer and a portion of the refund to the spouse, enter numeric 2. If you enter a numeric 2, you must also enter the percentage that you which to allocate to the taxpayer in “If Allocating, Percentage Allocable to Taxpayer (.xxxxxx)” (Screen 14.2, code 500). Do not enter a 2 in this code if the 1099-G was issued for a purpose other than a state and local tax refund or a property tax refund.

[Shedid]

I tried this as I posted in this thread. As the Lacerte instructions say for that field, it ONLY lets you allocate STATE REFUNDS, NOT UNEMPLOYMENT.  When I tried this, it did NOT allocate and gave me a diagnostic stating exactly what you just posted: 

"If the 1099-G was issued for a STATE AND LOCAL INCOME TAX REFUND or a PROPERTY TAX REFUND, and you wish to allocate a portion of the refund to the taxpayer and a portion of the refund to the spouse, enter numeric 2. If you enter a numeric 2, you must also enter the percentage that you which to allocate to the taxpayer in “If Allocating, Percentage Allocable to Taxpayer (.xxxxxx) . DO NOT ENTER a 2 in this code if the 1099-G was issued for a purpose OTHER THAN a state and local tax refund or a property tax refund."

[amec]

I did the split for a client in a similar situation and just entered the unemployment income for the spouse that didn't receive it into the 1099-G screen, and coded it the spouse. This seems to work fine. Not ideal, since Lacerte should do the split, but...

And yes, it's $10,200 each.

[BobKamman]

Next year upgrade to ProSeries so you can use the Form 8958.🙂

[Shedid]

Thanks for the tip.  I just got off the phone with Lacerte support (3 long hours, 3 different people, cut off 3 times ... and that's after their menu system hung up on me 4 times.) The last person spoke with said he tried everything to split the unemployment (as I did too) and he was NOT able to make Lacerte split it.  He "submitted it for escalation". I asked that he add a note to the submission requesting Lacerte  enable it to indeed be split. Per a call to my State Tax Commission, it IS indeed community property and it must be split between the spouses. So now I wait...

[Shedid]

As I said in prior posts in this thread, I do have the Form 8958, but the numbers do NOT flow to anywhere in the tax return.  It is just a static form.

[Bridgey]

Lacerte doesn't split unemployment.  From my understanding unemployment is not community income and is the separate income of the taxpayer it was paid to.  And the exclusion is per the taxpayer who is eligible.  In the same way CA SDI, social security, etc is not split.

[Shedid]

"Lacerte doesn't split unemployment"

That's part of the whole problem.... Lacerte is not splitting the community income and it needs to be split 50/50. The question then is how the unemployment exclusion works on a MFS return when only ONE of the spouses actually RECEIVED the unemployment.  Everyone seems to have a different take on this.

"From my understanding unemployment is not community income."

I live in a community property state.  It is definitely community income. There is no question about unemployment being community income. See Calhoun v. Commissioner.   

I spent half a day on the phone with Lacerte a week ago... 3 different phone calls.  Sent up my file so they could take a look at it. None of the techs could figure out why it's not splitting, but then I got cut off after an hour or so on all 3 calls. One tech "escalated the file up the chain."  I have heard nothing back.  I believe Lacerte automatically disconnects you after their standard hour (or so_) on the phone with support.  Each tech person took that long just to figure out that Lacerte indeed wasn't allowing you to split unemployment.  Pretty frustrating! Think it may be time to look for new software next year.

[Bridgey]

I am of the belief that so long as the taxpayer and spouse agree, express or implied, oral or written (per Calhoun vs Commissioner), that unemployment from community property will be treated as separate property, we'd have a strong argument in defending that position due to the UI exclusion this year which can not be split.  CA SDI, SE Tax, Social Security Wages are never split.  So it would make sense that the UI exclusion can not be split and that the unemployment income received in this case, also not be split.  Married filing separately in itself is very difficult for anyone to fully comprehend and in truth, how many taxpayer do you know that NEVER follow the community property rules and are never called on it?  

[cmanno]

Shedid; Did you ever get resolution to this issue.  I am in the same boat to determine if UI gets split in a community prop state and the exclusion as well.

[Bridgey]

Lacerte fixed this so it's working fine now

[cmanno]

How is it handling the $10,200 exclusion between the 2 MFS returns?

[Bridgey]

They each get the $10,200 exclusion

[Shedid]

Well, Lacerte is indeed splitting the unemployment 50/50 now on the MFS return.  Lacerte is also splitting the exclusion 50/50. In my case, the spouse is the only one that received the unemployment...almost $15k.  If this a MFJ return (if they weren't over the 150k), the spouse would only be able to exclude $10,200. Lacerte is excluding $7500 each on each of their MFS returns (for a total exclusion of 15k... more than the10,200 that would be allowed if filing joint).  I don't know if this is correct. I don't know how much, if any the non-recipient spouse is allowed to exclude. . . . Does the non-recipient spouse get to exclude  $5100 (half the 10,200)? zero? or what?  Everyone seems to speculate differently.

[Shedid]

Seems that is what Lacerte is doing, but I don't know if that is correct.

[Bridgey]

I don't know why your Lacerte program would work any differently than mine but that is not the case with mine. 

Husband received $18k unemployment, wife received $4k.  Each is claiming $11k on their MFS return, each is receiving the $10,200k exclusion which makes complete sense.  If they have to claim the income, they're entitled to the full exclusion.  

UI exclusion is able to be split due to community property rules, citing the ever popular Cahoun case, unemployment belongs equally to each spouse in a community property state

[Shedid]

I didn't say that Lacerte was working differently. It sounds like Lacerte is working the same in both of our cases.  It's splitting the unemployment 50/50. And it's excluding UP TO 10,200 on each of their returns.

  I don't disagree that the unemployment compensations gets split 50/50 in a community property state.  I am just not sure on the rules for the allocation of the exclusion since there has been no IRS guidance on this for MFS in community property states. The way Lacerte handles it, the couple is getting to exclude more than if they were MFJ (if my clients weren't over the 150k).

[Bridgey]

True but if they were married filing jointly they would each be claiming their respective unemployment received.  In the case of MFS, they're each having to claim 1/2 of the overall unemployment so it would stand to reason that they're eligible for the full exclusion, if applicable.

There has been no specific guidance from IRS that I have found but using current case law from Calhoun, sounds logical they would be entitled to the full exclusion.

[BobKamman]

IRS rarely issues "guidance" less than 30 days after a law is enacted, and recently when it has tried, it has been wrong.  We're not talking about the Vatican here.