Mulit-State W-2

[Latka_123]

I am befuddled with this one.    

Taxpayer moved mid-year to new state, for a new job.   The "new job W-2" has new state wages at 100% and old state wages at 100%.    My only guess is they started the new job just before they moved and didn't change their address until the succeeding year.   But they moved in July, and the old state should not get any slice of the pie.   

The old state will probably not accept an explanation of "coding error" on the state return.   

Thoughts please.   Thanks in advance.  

[Lynn EA USTCP in Louisiana]

Depending on the states involved the W2 just may be correct.  You may need to see pay stubs in order to discern when income to state #1 began/ended and the same for state #2.

[Abby Normal]

Jeez. Did they have withholding for the old state? Just file the return correctly and see if the old state questions it.

[Catherine]

Not necessarily as simple as it sounds.  Some states (MA and NY among them) want the total income taxable to that state listed.  It frequently doubles or near-doubles the Box 1 wages, since those two states (depending on circumstances) tax on state income/total income for allocating exemptions and/or give a (partial) credit for income taxed in two states.  

[NECPA in NEBRASKA]

I just had a W2 where my client lived in Missouri, never set foot in Arkansas, but they withheld AR. Their home office was in AR. I don't think that it makes it right, but the client didn't want to mess with them.

[joanmcq]

NY requires that the NY state wages on the w2 match box 1. It's a PITA because you must have the pay stub, and possibly a whole lot of other information to figure out what is actually taxable to NY. 

What are the state's involved?  NECPA's employer is wrong, and may not have registered as an employer in MO; a big issue in itself. 

I have a client whose employer FINALLY stopped withholding VA tax on out of state employees. Their old accountant was filing as though the wages were VA source income (and the client lives in FL, so no credit). I got them back over $15,000 in incorrect withholding. Unfortunately two years were out of statute. 

[Latka_123]

Thanks for the input!    I live in the KC metro, so 75% of the returns I do are multi state, MO & KS.   So multi state comes with the territory.   

The old state is CA, and the new state is W V.   It looks like the residency state for the whole year was CA (which it should not have been) and the worked in state was W V.   The state withholding is about 20% CA and 80% W V.   Which makes sense, since the the marginal rates are about 9.3% in CA, and 6.5% in W V.     (Taxed in work state first, and then taxed in resident state second)     

My guess is the new employer has nexus in the old state, so it didn't even hit the radar screen.   

I prepared a NY return many years ago, and was just surprised at what I experienced.   Even as a "non-resident" you are basically preparing the return as a resident, and have to prove the other sources as outside of NY.    Eye opening.  

Of course this is also a mess, preparing 2012, 2013, and 2014 returns.      Thanks all.   Really appreciate it.   

 

[Catherine]

Good luck!

[joanmcq]

I'm just trying to understand this: so client lived in CA until July, but worked in WV all year?  Did client work remotely from CA until July or physically in WV but didn't actually move hearth & home until July?

[SaraEA]

joanmcq is correct that some states REQUIRE that state wages match Box 1 federal wages.  NY, and I presume other states, has a form where you can break out what was actually earned in NY so you are only taxed on that amount.  The reason is that the RATE of tax is determined by your total income, not just what you earned in NY.

Say your client earned $1k in NY and $99k in WV.  Without the fancy footwork, the client's NY tax liability would be zero (below the filing threshold).  The allocation form will determine that at $100k income you client is in , say, the 10% state bracket (just making that rate up).  The result is that there will be $100 NY tax on the $1k NY income. Other states do exactly the same thing even when the state earnings reflect what was actually earned in the state.  Working through these forms is a nightmare though.

There is no credit for taxes paid to another state because that $1k was earned in NY and not taxed by another state.  The only time you would get a credit is if you lived in one state and worked in another, and the other state taxed that income.