What Is Community Income?
Community income is the earnings of a taxpayer who lives in community property states. At the time of this writing, there are nine community property states. These states include Wisconsin, Washington Texas, New Mexico, Nevada, Louisiana, Idaho, California and Arizona. In these states, community income belongs equally to both spouses, just as with all other property, owned or acquired by either spouse during the marriage. These states view marriage as a partnership where both individuals share equally in the assets.
Further, earnings from either spouse outside of the marriage do not fall into the consideration of being community income. These funds may come before or after marriage.
Types of Community Income and Registered Domestic Partners
Community income isn't always just money. It can include real estate, as well as salaries, wages and other payments you receive for services. Community property laws in Nevada, Washington and California also apply to registered domestic partners. This status means that each partner must report half of the combined income, even if the couple is not married.
- Income earned by taxpayers who live in community property states.
- Community income states include Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.
- Community income can include real estate and other property.
Real World Example
Community income laws frequently apply to couples who live in community property states and divorce. The spouses divide the community assets between themselves and are then taxed on half of the income for the part of the year before the dissolution of the marriage. Any earnings the spouses receive after the divorce is then considered separate income and taxable only to the earning individual.