Community income is income that, under the community property law that applies to the couple, belongs to both spouses rather than to the one who received it. The Internal Revenue Code does not define the substance of it, so whether income is community income is answered by state law, not by federal law.
That deferral is the whole point of the term. Two clients with identical W-2s can report different amounts on identical filing statuses, because one is domiciled in a state whose law splits the wage and the other is not.
The Code Sends the Question Somewhere Else
Both places the term is defined in the Code say the same thing, and both are circular on purpose. For purposes of that section, the term community income means income which, under applicable community property laws, is treated as community income (26 U.S.C. 66(d)(2)). The identical sentence appears in the nonresident alien provision (26 U.S.C. 879(c)(1)).
The companion definition is what makes the scope concrete, and it is wider than the fifty states. The term community property laws means the community property laws of a State, a foreign country, or a possession of the United States (26 U.S.C. 66(d)(3)), and the same definition is given at 26 U.S.C. 879(c)(2).
So there is no federal list of what counts. There is a federal rule that points at whichever body of law governs the couple.
Which Law Governs, and Where It Applies
Domicile is the connecting factor. Generally, the laws of the state in which you are domiciled govern whether you have community property and community income or separate property and separate income for federal tax purposes (IRS, Publication 555 (12/2024)).
The IRS addresses the publication to married taxpayers domiciled in one of nine named community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin (IRS, Publication 555 (12/2024)). It is also written for registered domestic partners domiciled in Nevada, Washington or California, who must generally follow state community property laws and report half the combined community income of the individual and the partner, and who are not married for federal tax purposes (IRS, Publication 555 (12/2024)).
One boundary is worth stating exactly as the IRS states it, because it is easy to over-read in either direction. The publication doesn’t address the federal tax treatment of income or property subject to the “community property” election under Alaska, Tennessee, and South Dakota state laws (IRS, Publication 555 (12/2024)). That is a statement about what the publication covers. It is not a ruling that such an election produces community income and not a ruling that it does not.
What Falls Into the Class
Generally, community income is income from community property, from salaries, wages, and other pay received for the services performed by you, your spouse or your registered domestic partner, or both, during your marriage or registered domestic partnership while domiciled in a community property state, and from real estate that is treated as community property under the laws of the state where the property is located (IRS, Publication 555 (12/2024)).
Note the third limb runs on a different connecting factor from the first two. Wages follow the earner’s domicile, while real estate follows the law of the state where the property sits, so a couple domiciled in one state can hold real estate governed by another state’s rule.
The separate-income side carries a state-specific exception that reverses the general rule. Generally, income from separate property is the separate income of the spouse or the registered domestic partner who owns the property, but in Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is community income (IRS, Publication 555 (12/2024)). Four of the nine states break the pattern the other five follow.
Where It Lands on a Return
The characterization only changes anything when the couple files separately. If you file a federal tax return separately from your spouse, you must report half of all community income and all of your separate income, and each spouse must attach Form 8958 showing how the reported amount was figured (IRS, Publication 555 (12/2024)). The trade-offs that sit behind the choice of status are set out in filing status.
Community property law also reaches basis. Community property laws affect your basis in property you inherit from a married person who lived in a community property state (IRS, Publication 555 (12/2024)), and the mechanism is worked through in step-up basis.
The Three Federal Overrides
Section 66 is titled Treatment of community income, and each of its first three subsections takes the state-law answer away in a defined situation.
Spouses who live apart. Where two individuals are married to each other at any time during a calendar year, live apart at all times during the calendar year, do not file a joint return under section 6013 with each other for a taxable year beginning or ending in the calendar year, where one or both have earned income for the calendar year which is community income, and where no portion of that earned income is transferred, directly or indirectly, between them before the close of the calendar year, then for purposes of this title any community income of those individuals for the calendar year shall be treated in accordance with the rules provided by section 879(a) (26 U.S.C. 66(a)). All four numbered conditions have to hold at once, and the second of them has two limbs of its own.
Section 879 is written for a different situation. Its own general rule opens by naming its subject: in the case of a married couple, one or both of whom are nonresident alien individuals, and who have community income for the taxable year, that community income shall be treated as follows. Section 66(a) borrows those rules rather than that scope, so what follows applies to spouses living apart because 26 U.S.C. 66(a) says so, not because section 879 reaches them directly. The rules run in four tiers. Earned income within the meaning of section 911(d)(2), other than trade or business income and a partner’s distributive share of partnership income, is treated as the income of the spouse who rendered the personal services. Trade or business income and a partner’s distributive share of partnership income are treated as provided in section 1402(a)(5). Community income not described in either of those paragraphs which is derived from the separate property, as determined under the applicable community property law, of one spouse is treated as the income of that spouse. All other community income is treated as provided in the applicable community property law (26 U.S.C. 879(a)).
A spouse who was not told. The Secretary may disallow the benefits of any community property law to any taxpayer with respect to any income if that taxpayer acted as if solely entitled to the income and failed to notify the taxpayer’s spouse, before the due date including extensions for filing the return for the taxable year in which the income was derived, of the nature and amount of that income (26 U.S.C. 66(b)).
A spouse who did not know. Under regulations prescribed by the Secretary, where an individual does not file a joint return for a taxable year, does not include in gross income for that year an item of community income properly includible in it which, in accordance with the rules contained in section 879(a), would be treated as the income of the other spouse, establishes that he or she did not know of and had no reason to know of that item, and where taking into account all facts and circumstances it is inequitable to include the item in that individual’s gross income, then the item shall be included in the gross income of the other spouse and not in the gross income of the individual (26 U.S.C. 66(c)). The same subsection carries a second, wider sentence: under procedures prescribed by the Secretary, where taking into account all the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax or any deficiency, or any portion of either, attributable to any item for which relief is not available under the preceding sentence, the Secretary may relieve that individual of that liability. How that route runs alongside the joint-return remedy is covered in innocent spouse relief.
Common Questions
The nine the IRS names for this purpose are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin (IRS, Publication 555 (12/2024)). The statutory reach is broader than a state list, because community property laws is defined to include the community property laws of a foreign country or a possession of the United States as well as of a State (26 U.S.C. 66(d)(3)).
No. Community property is the asset, and community income is what the asset or the spouses’ work produces. The two are linked but not identical, which is why the same publication treats income from separate property as community income in four states and as separate income elsewhere (IRS, Publication 555 (12/2024)).
Not to the total. The split matters when separate returns are filed, because that is when each spouse reports half of all community income and all of that spouse’s separate income (IRS, Publication 555 (12/2024)). On a joint return both halves land on the same return anyway.
At intake, before anything is entered. The characterization depends on domicile, on the date of the marriage or partnership, on which state’s law governs a particular parcel of real estate, and on whether any property was converted by agreement. None of that arrives on a wage statement, so it has to be asked for, and a return prepared without asking will be internally consistent and still wrong.
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