Married Filing Joint Federal return with spouse having non resident income in MA and would like to file MA as MFS. I cannot see how to do this in QB?

[sjrcpa]

QB does not do tax returns. What software are you using?

Does MA allow MFS when federal is MFJ?

[itonewbie]

Is there any special reason you want to do MFS for MA?  Generally, MA requires MFS only if the spouses do not have the same residency status and period.

If your clients are in one of these situations, you will likely need to create and prepare separate returns for MA.  From what I can tell, PTO cannot handle a different filing status for MA - there is not even an input for different residency periods for the spouses.

[itonewbie]

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@sjrcpa wrote:

QB does not do tax returns. What software are you using?

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Because of the integration between QBOA and PTO, a lot of folks get the two mixed up.

[cmcgeehen]

Yes. MA allows a different filing status from federal and it does apply to my client. 

QB does have a tax product... Intuit ProConnect is a part of QB. 

I don't think the system allows the returns to be split. I will most likely have to efile federal and then file MA on paper. 

Thanks anyway.

Tina

[cmcgeehen]

Yes... you are correct. The system won't allow it. 

Spouse earned $22k in MA and together they earned over $400k. They are non residents moving from MA to CT in 2018.  My client's former CPA filed her MA separately since all of the spouse's income has always been earned in NJ & CT. But she incorrectly filed her MA as a single taxpayer and didn't include their total income as part of the MA pro-ration calculation which is what I think you are supposed to do when filing MFS so my client thinks I am doing it wrong. MA instructions only say that federal total and AGI need to be combined on the MA MFS return but does not also indicate whether the total income from all sources outside of MA need to be combined for the MA return as well. I think it does but client is disagreeing with me... because of prior year CPA I guess. 

[itonewbie]

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@cmcgeehen wrote:

QB does have a tax product... Intuit ProConnect is a part of QB. 

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Your understanding is not correct.  ProConnect Tax Online is not a part of QBO.  However, there is integration between the two products.

[itonewbie]

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@cmcgeehen wrote:

They are non residents moving from MA to CT in 2018.  My client's former CPA filed her MA separately since all of the spouse's income has always been earned in NJ & CT.

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What do you mean they were nonresidents moving from MA to CT in 2018?  I suppose you are amended the 2018 return and that would make them both PY and NR for MA tax purposes, not nonresidents.

Also, MA (although a tough state to break domicile with) has a very straight forward tax regime which assesses 5.1% on most categories of income other than capital gains, which is subject to a 12% tax.  It is not clear how filing MFS would benefit them just because one spouse earned the income in NJ and CT as a credit would then be claimed for the portion earned during the PY period on the MA return.

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But she incorrectly filed her MA as a single taxpayer and didn't include their total income as part of the MA pro-ration calculation which is what I think you are supposed to do when filing MFS so my client thinks I am doing it wrong. MA instructions only say that federal total and AGI need to be combined on the MA MFS return but does not also indicate whether the total income from all sources outside of MA need to be combined for the MA return as well. I think it does but client is disagreeing with me... because of prior year CPA I guess. 

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It is not clear what you are proposing to do.  But MA does require both spouses' income to be combined only if they file jointly.  However, this should have no material tax effect on PY/NR filers.  The inclusion of the other spouse's income will affect the proration of exemption (the numerator of which is only MA source income) that could be applied against the 5.1% income but only if they were NR, which they were not, based on what you stated.  For PY, the proration is based on day-count for the resident period instead.

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@cmcgeehen wrote:

I don't think the system allows the returns to be split. I will most likely have to efile federal and then file MA on paper. 

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Even if you decide to file MFS, the reason of which is not clear, the MFS returns for both spouses can still be e-filed because MA is a Standalone state.  There is no need to file the returns on paper (at least for the original 2019 returns).

[Edit: Added comments about paper filing for 2019 and to clarify inclusion of spouse's income]

[cmcgeehen]

They are non residents for MA in 2019. They moved to CT from MA in 2018.  She worked for a hospital located in MA in both years. In 2019, she earned only $22k for that job and then opened her own practice in CT with a small loss in 2019. Her husband works for a hospital in CT and worked there all year. His income was all CT and totaled around $400k for 2019. She had the MA income of $22k and then her loss of $11k in CT for her own practice she started in 2019. 

The pro-ration is coming into the equation since her MA return is all NR for 2019. The system is taking all non MA income of $395k and taking the $22k earned in MA as a % of the total income as the pro-ration factor to apply against her exemptions. This is the dispute. Thus, her exemptions for her and her 2 children are being calculated at roughly 5.5% to deduct from the $22k income which is yielding a small amount owed. 

[cmcgeehen]

She is not understanding why she can't file with single status and completely exclude his income for the pro-ration. Since she was married, her only option is to either file MFJ or MFS correct for MA?  I think her prior CPA chose the wrong filing status for her as single. 

If she files MFS she owes more tax than if she files MFJ... especially if all of the income needs to be included in the NR pro-ration.

Thanks for your advice!  I truly appreciate it!

[itonewbie]

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@cmcgeehen wrote:

She is not understanding why she can't file with single status and completely exclude his income for the pro-ration.

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Single is completely wrong unless she was legally separated from the spouse under final judgement, which doesn't seem to be the case.

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Since she was married, her only option is to either file MFJ or MFS correct for MA?

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As explained in the original response.  If they don't have to file MFS unless the spouses do not share the same MA residency status/period.  In other words, if their residency status and period are the same, they are allowed to file MFJ.

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If she files MFS she owes more tax than if she files MFJ... especially if all of the income needs to be included in the NR pro-ration.

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What "NR pro-ration" are you referring to?  Please see my last response about the application of proration, which affects only the exemption and that the inclusion of the spouse's income should not have any material tax effect because she was both PY and NR, whose proration is based on day-count during the residency period (i.e. not MA vs income from all sources).

[cmcgeehen]

She was NOT both PY and NR for 2019. I think you missed my last response. She was 100% NR for MA for 2019. They BOTH moved from MA to CT in 2018. So ALL of 2019 they were NR for MA. 

The calculation for the pro-ration of the exemptions is as follows:

MA income= $22k

Non MA income= $395K

% pro-ration for NR= 22/395=5.5%

Exemptions= 4,400 for her and 2,000 for her 2 children (MFS excludes her husband) multiplied by the 5.5%= $356 deduction from the $22k. 

She is claiming that she should get 100% of the exemption deduction filing separate= $6,400. She doesn't think the $395k should be reported at all because that was all CT and most of it was her husband's and not hers. 

MA does not specify whether the income from outside MA ($395k) should include her spouse. or just her.  That is the question. 

[itonewbie]

I was mistaken that you were referring to amending the 2018 return since you kept referring to the return her former accountant prepared.  That's also why I referred to 5.1% instead of 5.05%.

The filing instructions may not be very explicit about what to include in the denominator but Chapter 62, Section 3 is. 

Part B paragraph (b)(1)(A) permits only $4,400 for MFS taxpayers.  Paragraph (c) then stipulates that the denominator of the ratio "is the amount which would have been his Massachusetts gross income had he been a resident of the commonwealth throughout the full taxable year." 

Similarly, 830 CMR 62.5A.1(7)(b) explains that "[t]he total exemption amount must be pro-rated by the "deduction and exemption ratio" of the taxpayer's Massachusetts source income to his or her total income."

The law does not provide for any special adjustment for the other spouse's income in relation to this proration.  And this would make sense because no personal exemption is allowed for the other spouse.  In other words, she is correct that her husband's income does not need to be included in the denominator.

I think it's the instructions for Lines a and b that were confusing but if you read them carefully, the instructions to include the other spouse's income is applicable "when completing this section" only.  The verbiage about including the other spouse's income does not appear anywhere else.

For example, if she had only $22k in MA wages but no other MA-source income but her total income on an as-if resident basis was $55k, the ratio will be 0.40.  If she is eligible to claim two dependents and the total exemption is $6,400, the prorated exemption that could be used to offset her 5.05% income would be $2,560 ($6,400 x 22/55).

[cmcgeehen]

Thank you!  This helps a lot. 

Now... the other kicker is this... if I just use her income for the denominator, she had the $22k MA income and then started her own business in CT which generated an $11k loss. So her other income from all other sources outside of MA would be $0 correct as she only had a loss outside of her MA income?  I think that is the correct reporting... I wouldn't put the loss in would I? 

Thanks for all your help!  This clears most of it up tremendously!

[itonewbie]

You can't bring the denominator to below zero.  This would probably mean she'd get the exemptions in full.  Flow the numbers through PTO and check the result.

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