Minnesota - Filing Status different from federal

[HariS]

Client came from another tax preparer.

Taxpayer is Virginia resident and spouse is Minnesota resident and their W-2 reflect accordingly

MN Dept of Revenue clearly states filing status for MN has to be the same as federal. But somehow in previous year, the tax preparer managed to file in MN as MFS separately showing only spouse's MN income.

I am looking everywhere worried I am missing something basic. Is it possible they first prepared federal return as MFJ, then went back in prepared federal as MFS, discarded federal and did the MN state separately, showing only the state income thereby lower taxes. 

But the question remains. MN state return very clearly states "filing status per federal". Was the previous preparer trying sneak in MFSeparately for MN , thereby blatantly disregarding what the MN state clearly says on its website upfront. 

Just wanted to check in with veterans that my understanding correct.

thanks in advance

Hari

[IRonMaN]

They maybe filed it that way but that doesn’t mean MN won’t send them a love letter at some point.

[HariS]

Thank you!

[IRonMaN]

You betcha!

[BobKamman]

This raises an interesting Constitutional question.  Does Minnesota acquire jurisdiction over a Virginia resident, just because she marries a Minnesotan?  For all we know, she has never been in Minnesota.  

Can Texas throw a New York doctor in jail, for prescribing medication for one of its residents?

Does Minnesota have "long arm" jurisdiction to assess income tax to a Virginia resident who has no Minnesota income?

Or can they just assess a higher tax on their Minnesota resident, because he married someone from another state?  (I was already a college graduate before the US Supreme Court told Virginia that it couldn't ban interracial marriages.)  

There may be some case law on this, but if these were my clients I would do some research and at least ask Minnesota, who do you guys think you are?  (Nicely, of course.  We all remember Derek Chauvin.) 

[sjrcpa]

Requiring a joint MN return doesn't mean MN will tax spouse's VA income. I imagine there is some mechanism - either a subtraction or a credit - to avoid this.

[BobKamman]

My point was that when the Minnesota tax on a joint return is higher than the Minnesota tax on a separate return, then it means that Minnesota is either (1) taxing the Virginia spouse's income; or (2) taxing the Minnesota resident more because of the Virginia spouse.  There should be a law against it, either way.  If not the Constitution, then a federal law, like the one that says Minnesota can't tax pensions once its resident moves to Virginia.  

As a practical matter, I don't think Minnesota has an easy way to find out whether its resident is filing a joint return, when the address on the 1040 is Virginia.  IRS sends Minnesota a list of returns filed with Minnesota addresses, and Minnesota's computers rely on that for matching.  IRS does not send Minnesota a list of all returns filed in every state.  

[sjrcpa]

Point taken. Wonder if it has been litigated.

[HariS]

Thanks to both of you for additional insights.

My client accepts that he has to file joint in Minnesota but his issue is that he is effectively paying higher tax in Minnesota (tax rate is higher) due to the manner Minnesota calculates the proportional income and proportional tax . From what I can tell, the Minnesota resident is being taxed more because of the much higher VA spouse's income

VA portion of income is much higher and that gets included in "initial" combined taxable income which is the starting point. The proportion of MN to Total is arrived at and that "ratio" is applied on the tax at MN rates on total income. That works out to be a significant difference because the rate is higher in VA.

I hesitate to get fancy and attempt part year resident in MN and manipulate from and to dates to get around this

Client is reasonable though not thrilled that he is sort of paying a penalty for one of them being a Minnesota resident full year. 

I could attempt sneaky methods but one would be blatantly misstating status on the face of MN return where it simply asks for your federal filing status.

Is "suck it up" the only way if one does not want wish to explore a gray area of a) playing with dates b) declaring incorrect status in MN return 

[BobKamman]

"Is "suck it up" the only way if one does not want  to explore a gray area of a) playing with dates b) declaring incorrect status in MN return"

When Minnesota says "Jump" and your client asks, "How High?", you just move on and try to help the next client who is more pit bull and less sheep.  

In many cases you can file it their way and then file an amended return claiming it your way.  That might provoke them into admitting they are wrong.  But here they would just say you can't amend joint to separate.  

[HariS]

thank you!

[George4Tacks]

If you file MFS on the Federal, what is the difference in tax? 

https://accountants.intuit.com/support/en-us/help-article/tax-filing-status/compare-split-married-fi...

[HariS]

Looked at that too,  If I did MFS on the Federal it comes out to $8K more whereas the joint status for MN has a net payable of $3K , 

Thanks for suggesting I look at that too