Community Property Rules May Make Unemployment Income Exemption More Valuable

Today’s hot take is on an article by David Fogel, EA, CPA, USTCP in a publication of the California Society of Enrolled Agents. Dave’s a thoughtful practitioner and takes on a timely issue: unemployment income and community property taxation.

Disclosure: my knowledge of community property rules wouldn’t fill half a thimble (I’m stealing this from one of my all-time favorite EAs, Frank Degen, EA, USTCP).

While I like to shorthand community property with the words of a country music classic: (“what’s mine is mine and what’s yours is mine”), that’s only half right (but I’ll quote Porter Wagoner *any* opportunity I get). Really, what’s mine is half yours and what’s yours is half mine.

The crux of the issue, as Mr. Fogel summarizes:

“Some tax professionals have argued that in a community property state, each spouse is entitled to the exclusion even if only one spouse received the unemployment compensation income.”

So this would mean, for instance, if one spouse received $20,400 in UI and the other received $0, each could exempt $10,200 from tax.

The $64,000 (well, not $64k, but possibly $1,500) question: will it work? I won’t spoil the ending, but suggest tax professionals dust off Form 8275.

Bob is interested in a wide range of tax issues – and in issues not tax related, though he agrees with the assertion, “Everything has a tax angle.” You can contact him here or follow him on Twitter @BSG_BobKerr.