IRS POSITION ON CALIFORNIA RDPs REPORT ON INCOME DEDUCTIONS OR PENALTIES
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Does this new IRS position change all amounts that California RDPs report as income, deductions or penalties?
No. Separate (in other words, non-community) income described in Q&A #2, and associated deductions and penalties, are all unaffected. Under the new IRS position, each California RDP must continue to report the full amount of his or her separate income on his or her federal income tax return.
In addition, as discussed further in Q&A #11 below, the IRS has suggested that same-sex RDPs covered by the new IRS position should follow its guidelines for different-sex spouses filing separate federal tax returns, set out in IRS Publication 555, when preparing the separate federal tax returns for each RDP. As described in IRS Publication 555 and other IRS authority, income, deductions, and penalties associated with particular items are always treated as separate under federal tax law, even for different-sex spouses in community property states.
Such items include:
? Individual retirement arrangements, including Individual Retirement Accounts (IRAs), SEP-IRAs, SIMPLE IRAs, and Roth IRAs. Whether distributions from a 401(k) plan are treated as separate or community property is a complex question. The answer may depend in part, on the extent to which contributions to the plan were made from separate or community property. Because of that complexity, as well as some potentially conflicting authority in the area, RDPs should consult with a tax professional about their individual situations regarding the appropriate treatment of 401(k) plan matters.
? All or part of the distributions from a pension plan. The extent to which federal tax law treats a pension plan as separate property, community property or both separate and community property (in part) may depend on the particular facts and circumstances.
? Coverdell Education Savings Accounts (ESAs).
? FICA (Social Security and Medicare withholding).
? Estimated tax payments. For taxable income that is not subject to withholding, each individual RDP may need to make his or her own separate estimated federal tax payments to cover federal taxes on his or her share of all community income plus their own separate income.
Note, however, that the IRS has indicated in Publication 555 that RDPs and same-sex spouses in California should report community income for self-employment tax purposes the same way they do for income tax purposes. Thus, applying this rule to the example in Q&A #4, Dan and Steve would each be responsible for half of the self-employment taxes related to the nursery business, even though Dan carried on the business. Same-sex couples should consult with a tax professional with expertise in this area about the applicability of this rule to their individual situations.
Depending on your personal situation, you might have additional items that are always treated as separate for federal tax purposes.
Click here for more information on Tax Preparation for Registered Domestic Partners.
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