How do you input "Exempt Community Income" on Schedule 2, Part II line 4? This is per IRS instructions when allocation self-employment community income.

[glendiver]

Program does not allow override.  IRS wants to see this in that line.  Got nailed last year and client refund held up 6 months.  I did attach a note, but they don't always read them.  Same problem this year.  Any suggestions or better yet a fix.

IRS instructions -
"Spouse who didn’t carry on the business. If you aren’t the spouse who carried on the business and you had no other income subject to SE tax, enter “Exempt community income” on Schedule 2 (Form 1040), line 4. Don’t file Schedule SE."

[Just-Lisa-Now-]

what kind of the situation you have that needs this?

[glendiver]

Self employment income is community property income in Washington. Client wants to file separate. Not a problem if MFJ.

[glendiver]

PS.  The non business spouse receiving the allocation reports it on Schedule C.  That generate the SE, which is adjusted to zero, but you still have to write Exempt Community Income on that line or the IRS will assess the SE tax.

[Just-Lisa-Now-]

I do very few MFS in CA, the few Ive done with SE income the needs to be split, I just plunk it on the Other Income line, and adjust it out on the other return in the same way...the SE taxes stay with the one who earned it, they dont get split.

[glendiver]

I tried that one year and IRS kicked it back.