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California: NRA Spouse Working Overseas, Income May Still be Subject to CA Taxes

If you live in California but your spouse is an NRA working in a foreign country, you may have to report 50% of your spouse’s income on your California return. California has the authority to tax its residents on all community property income, which is so broadly defined that even income earned by an NRA spouse outside of California may qualify.

California has established that if a California resident has a marital interest in the other non-resident spouse’s income, the California resident must report his/her portion of income on the California return. To determine marital interest, California will apply the local law which governs the income at issue. If the non-resident spouse earned their income in a country that has a community property regime, the California spouse will have a community property interest in the income and must report 50% of the income on the California return. There are many countries that have a community property regime. Moreover, some countries, like China, do not have a blanket community property regime. However, they do have default community property laws for certain incomes and marital properties. The California spouse will be deemed to have a marital interest in those incomes and properties.

Because of the above, many taxpayers with NRA or non-California resident spouses are caught off guard by additional California assessments. One must be careful when planning for separate residency in California.

 

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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