MFS Social Security is now taxable

[ATSMAN]

I have an unfortunate tax situation with a client. She and husband were filing MFJ for ever but last year due to "spousal abuse" she moved out of the house at some point in time and went to live with her daughter in TX. I did not want to ask for all the details so early by e-mail. I have not contacted her husband to see if he is also going to file MFS. I want to treat this situation sensitive but professionally. When they were filing MFJ most years none of the social security was taxable.

She wants to file MFS (I think a divorce may be on the way). The problem is that all her social security is now becoming taxable because she did live with her husband for most of the year. She has roughly 50K in other income in 2015. Made a huge withdrawal from her IRA when she moved south.

Is there any exception to this rule if there is spousal abuse involved? If yes what must be proved?

[Burke]

Unfortunately, I have never seen anything in the IRS regs about an exception for this if she files MFS.

[Lion]

I remember some exceptions to the "lived together any time during the last half of the year" that might have included spousal abuse. I don't remember where it came up, probably in a class or long-ago update seminar. But, I'd certainly research it a bit more. Use your NATP free question, for instance. Try the NAEA message board. Even call one of the lawyers advertising on TV about helping with SS to see if he can cite a helpful part of the code.

[Gretel]

I heard about that exception too for spousal abuse but also cannot remember where. I believe though that is was in regards to EIC, children etc.

[kathyc2]

Even if she files as single 85% of SS benefits would be taxable due to the 50K.

[Burke]

Right. The IRA withdrawal apparently did her in as far taxable SS. So it is a moot point as to her filing status, except for the standard deduction and tax rate itself.

[RitaB]

Correct as usual

Even if she files as single 85% of SS benefits would be taxable due to the 50K.

Right. The IRA withdrawal apparently did her in as far taxable SS. So it is a moot point as to her filing status, except for the standard deduction and tax rate itself.

Agree with my esteemed colleagues.

[New York Enrolled Agent]

I heard about that exception too for spousal abuse but also cannot remember where. I believe though that is was in regards to EIC, children etc.

You're probably thinking about the provision in §36B that generally only allows the PTC for married taxpayers who file jointly.

If there is spousal abuse, then a taxpayer who files MFS may be an "applicable taxpayer" for purposes of the credit. See Notice 2014-23.

[ATSMAN]

Even if she files as single 85% of SS benefits would be taxable due to the 50K.

I can't see how she can file single or be considered "married individuals considered unmarried" because she does not meet that test.

The way I look at it unless there is some obscure exception for "spousal abuse" that she either files MFS and takes a big haircut or files MFJ, assuming the couple can reconcile for tax purpose only!

I am going to see if I can speak to each individually and professionally tell them what their filing options are. I am not getting involved in any legal drama! I am going to suggest they seek legal counsel if there are other issues that I am not aware of and I will be more than willing to file an extension. I looked up last year and they got both fed and state refund filing MFJ.

[RitaB]

You misunderstood the gist

I can't see how she can file single or be considered "married individuals considered unmarried" because she does not meet that test..

She meant you don't need to worry with whether or not spousal abuse will help her (so to speak). The problem of taxable SS benefits would still exist if she were not MFS because of her income. SS benefits would be 85% taxable even if she were Single. No, she can't file as Single, but it was not being suggested that you do that.

[kathyc2]

I can't see how she can file single or be considered "married individuals considered unmarried" because she does not meet that test.

The way I look at it unless there is some obscure exception for "spousal abuse" that she either files MFS and takes a big haircut or files MFJ, assuming the couple can reconcile for tax purpose only!

I am going to see if I can speak to each individually and professionally tell them what their filing options are. I am not getting involved in any legal drama! I am going to suggest they seek legal counsel if there are other issues that I am not aware of and I will be more than willing to file an extension. I looked up last year and they got both fed and state refund filing MFJ.

Tread carefully. He may not know that she took the disbursement and it would be unethical for you to even hint about it to him without her permission. You can't really go by what happened last year, as last year did not have the 50K. 50K of income is going to make 85% of SS benefits taxable whether MFJ or MFS. I don't think the tax between MFS and MFJ is going to be as much as you think it will. I would suggest using last year's numbers plus the 50K and run it both as MFS and MFJ to see how much difference it makes. You could then present to her the difference because you would be using only last year info and her additional info. You absolutely can not tell him the differences without first obtaining her permission to let him know about the withdrawal.

[ATSMAN]

Tread carefully. He may not know that she took the disbursement and it would be unethical for you to even hint about it to him without her permission. You can't really go by what happened last year, as last year did not have the 50K. 50K of income is going to make 85% of SS benefits taxable whether MFJ or MFS. I don't think the tax between MFS and MFJ is going to be as much as you think it will. I would suggest using last year's numbers plus the 50K and run it both as MFS and MFJ to see how much difference it makes. You could then present to her the difference because you would be using only last year info and her additional info. You absolutely can not tell him the differences without first obtaining her permission to let him know about the withdrawal.

I agree completely that I can NOT disclose her tax situation to him without her permission because she has confided in me with her life situation. I intend to talk first to her next week and see what she has to say. As I said before I absolutely do not want to get in the middle of their issues. Unfortunately if she had called me before taking that hefty IRA distribution I could have given her an idea of what she may be looking at for taxes.

[taxea]

Does she have a legal separation filed with the court?

[Snaggletooth]

Note the following

Does she have a legal separation filed with the court?

This is a very good question. The divorce does not have to be final in order to file single, if there is "other court action" involved. See the filing requirements for a good definition of "other court action."

If she can't file as single, it is only with the agreement of BOTH spouses that they may file joint. The refusal of either party to file joint means they must both otherwise file MFS.

Sticky situation ATS. One which I have had to face many times - and never pleasant.

[ATSMAN]

This is a very good question. The divorce does not have to be final in order to file single, if there is "other court action" involved. See the filing requirements for a good definition of "other court action."

If she can't file as single, it is only with the agreement of BOTH spouses that they may file joint. The refusal of either party to file joint means they must both otherwise file MFS.

Sticky situation ATS. One which I have had to face many times - and never pleasant.

It is my understanding from one brief conversation that I had with the wife that no legal action for separation or divorce has been filed yet. The wife left the home in MA with some personal belongings and the IRA money and moved in with her daughter in TX. The way I see it it will most likely be a MFS filing unless they make an attempt to reconcile. I am going to suggest that if they need more time to get counsel they file an extension.

It is a sticky situation no doubt and I want to stay away from it as much as I can, and handle it professionally.