Income tax withheld for wrong state, how to file?

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Income tax withheld for wrong state, how to file?

Postby Walleye12 » Tue Feb 05, 2013 10:33 pm

Hello everyone,

Last summer I moved states and began working. For my first paycheck, my employer withheld taxes for both the state I moved from and the state I moved to. Now I have a W2 for each, but I don't know how to file for my old state (MN). The W2 lists me as having earned income for MN, but I really did not. When I notified them months ago they said that I would have to correct it when I filed. What should I do?

I can provide more information if needed, but I don't know what else to provide.

Thanks!
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Re: Income tax withheld for wrong state, how to file?

Postby LadyGeek » Tue Feb 05, 2013 10:40 pm

What is the new state? Perhaps there is a reciprocity agreement (taxes paid for one state count for the other)? See: State income taxes

You could also get the tax instructions for each state and see what they say about residency in other states. You should be able to find the info at each state's website.
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Re: Income tax withheld for wrong state, how to file?

Postby Walleye12 » Tue Feb 05, 2013 10:44 pm

Old State: Minnesota
New State: Colorado
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Re: Income tax withheld for wrong state, how to file?

Postby Alan S. » Tue Feb 05, 2013 10:47 pm

You will have to file in both states, for MN if nothing more than to claim your refund. If your income from each state met their minimum you would normally file a part year return in each state, only thing different here is that you may not have had to file in MN if the withholding had not gone there. Of course, if you do not have to file for MN for any other reason and your refund is too small to bother with, you always have the choice not to file there.

But note that if you don't fle in MN and withholding for the new state income went to the wrong state, you may end up double taxed on the same income.
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Re: Income tax withheld for wrong state, how to file?

Postby Walleye12 » Tue Feb 05, 2013 10:57 pm

Alan S. wrote:You will have to file in both states, for MN if nothing more than to claim your refund. If your income from each state met their minimum you would normally file a part year return in each state, only thing different here is that you may not have had to file in MN if the withholding had not gone there. Of course, if you do not have to file for MN for any other reason and your refund is too small to bother with, you always have the choice not to file there.

But note that if you don't fle in MN and withholding for the new state income went to the wrong state, you may end up double taxed on the same income.


Thanks Alan. You are correct in that I do not have to file for MN for any other reason, though no refund is too small for me to bother with so I will be filing to get this back :-) ($25 in this case)

So can I just say that I had no income in MN, yet had $25 taken out in taxes? My concern is that does not match the W2 I have in front of me which claims I had earned income in MN. (Box 16: State wages, tips, etc. has a dollar amount for my MN W2)
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Re: Income tax withheld for wrong state, how to file?

Postby HouseStark » Tue Feb 05, 2013 10:58 pm

If you moved before you started earning those paychecks, then you are correct that you should have no earned income for MN, even though state taxes were withheld. The correct thing to do would be to file a part-year resident return for MN and a part-resident return for CO that correctly allocate the income earned in each state. Any state tax withholdings would be applied to the respective state tax liability, if any. The problem with this may be that MN may not want to agree with your assertion that the MN income which is presumably being reported on your W-2 is, in fact, not MN income. So, the less troublesome course of action may be to simply report on the MN tax return the MN income which is reported on your W-2 and report the CO income to CO. That's the way it was reported to you by your employer and if it is a minor amount, it is not unreasonable for you to go with that. If all the income is being reported to CO and a portion of that amount is also reported to MN, then the income could end up being taxed twice unless you do it correctly.
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Re: Income tax withheld for wrong state, how to file?

Postby Walleye12 » Tue Feb 05, 2013 11:04 pm

HouseStark wrote:If you moved before you started earning those paychecks, then you are correct that you should have no earned income for MN, even though state taxes were withheld. The correct thing to do would be to file a part-year resident return for MN and a part-resident return for CO that correctly allocate the income earned in each state. Any state tax withholdings would be applied to the respective state tax liability, if any. The problem with this may be that MN may not want to agree with your assertion that the MN income which is presumably being reported on your W-2 is, in fact, not MN income. So, the less troublesome course of action may be to simply report on the MN tax return the MN income which is reported on your W-2 and report the CO income to CO. That's the way it was reported to you by your employer and if it is a minor amount, it is not unreasonable for you to go with that. If all the income is being reported to CO and a portion of that amount is also reported to MN, then the income could end up being taxed twice unless you do it correctly.


HouseStark,

Yes, it appears to be taxed twice right now which is my concern. I did move before I started earning paychecks. My full income is listed on my Colorado W2, but part of that full income is listed again on my Minnesota W2. Might my employer issue me a corrected W2 for Minnesota with $0 income earned?
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Re: Income tax withheld for wrong state, how to file?

Postby HouseStark » Wed Feb 06, 2013 6:06 pm

Getting a corrected W-2 would be the best option.
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Re: Income tax withheld for wrong state, how to file?

Postby cherijoh » Wed Feb 06, 2013 6:40 pm

TJ2012 wrote:
HouseStark wrote:If you moved before you started earning those paychecks, then you are correct that you should have no earned income for MN, even though state taxes were withheld. The correct thing to do would be to file a part-year resident return for MN and a part-resident return for CO that correctly allocate the income earned in each state. Any state tax withholdings would be applied to the respective state tax liability, if any. The problem with this may be that MN may not want to agree with your assertion that the MN income which is presumably being reported on your W-2 is, in fact, not MN income. So, the less troublesome course of action may be to simply report on the MN tax return the MN income which is reported on your W-2 and report the CO income to CO. That's the way it was reported to you by your employer and if it is a minor amount, it is not unreasonable for you to go with that. If all the income is being reported to CO and a portion of that amount is also reported to MN, then the income could end up being taxed twice unless you do it correctly.


HouseStark,

Yes, it appears to be taxed twice right now which is my concern. I did move before I started earning paychecks. My full income is listed on my Colorado W2, but part of that full income is listed again on my Minnesota W2. Might my employer issue me a corrected W2 for Minnesota with $0 income earned?


So you are saying that if you add the MN state income and CO state income it exceeds your federal income? That is very odd. (If this is not the case, then I would double check the assumption you were "double taxed"). Point this out to your employer - they should definitely fix the W-2 (which would apply for both states).
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Re: Income tax withheld for wrong state, how to file?

Postby HouseStark » Wed Feb 06, 2013 10:09 pm

cherijoh wrote:So you are saying that if you add the MN state income and CO state income it exceeds your federal income? That is very odd. (If this is not the case, then I would double check the assumption you were "double taxed"). Point this out to your employer - they should definitely fix the W-2 (which would apply for both states).


I would say that on a W-2 that reports income for more than one state it is not be unusual for the state incomes to add up to more than the federal income. The reason for that is when someone is a resident of a state, say MN, the employer reports all of that person's income to that state, but that person could also work in another state for that same employer. In that case, the employer would report the income earned in the other state, say IL, to that state, while including that same income in the MN income. In that case, the combined state incomes would exceed the federal income.

For example, Sven is a MN resident who works for one company the whole year and makes $60,000. While working at this job, he is sent to IL for one month on a project. Sven's W-2 should report $60,000 of federal income, $60,000 of MN income and $5000 of IL income. Sven files tax returns for both MN and IL. His IL return is as a non-resident. Sven pays whatever tax he owes to IL on his $5000 income earned there. On Sven's MN full-year resident return, Sven reports his entire $60,000 income, same as his federal return. However, on his MN return Sven can claim a tax credit for taxes paid to another state. That is what corrects the double taxation of the $5000 income. It doesn't always work out that the full amount of tax paid to another state can be claimed as a tax credit, but usually it can. As a resident of MN, all of Sven's income is subject to taxation by MN.

This is a different situation that the OP describes, but I think it describes how the W-2 income reported for MN and CO totals more than the federal income. The employer reported it as if the OP was a CO resident who earned a small portion of his income in MN, and it was subject to withholding.
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Re: Income tax withheld for wrong state, how to file?

Postby Walleye12 » Wed Feb 06, 2013 10:43 pm

HouseStark wrote:
cherijoh wrote:So you are saying that if you add the MN state income and CO state income it exceeds your federal income? That is very odd. (If this is not the case, then I would double check the assumption you were "double taxed"). Point this out to your employer - they should definitely fix the W-2 (which would apply for both states).


I would say that on a W-2 that reports income for more than one state it is not be unusual for the state incomes to add up to more than the federal income. The reason for that is when someone is a resident of a state, say MN, the employer reports all of that person's income to that state, but that person could also work in another state for that same employer. In that case, the employer would report the income earned in the other state, say IL, to that state, while including that same income in the MN income. In that case, the combined state incomes would exceed the federal income.

For example, Sven is a MN resident who works for one company the whole year and makes $60,000. While working at this job, he is sent to IL for one month on a project. Sven's W-2 should report $60,000 of federal income, $60,000 of MN income and $5000 of IL income. Sven files tax returns for both MN and IL. His IL return is as a non-resident. Sven pays whatever tax he owes to IL on his $5000 income earned there. On Sven's MN full-year resident return, Sven reports his entire $60,000 income, same as his federal return. However, on his MN return Sven can claim a tax credit for taxes paid to another state. That is what corrects the double taxation of the $5000 income. It doesn't always work out that the full amount of tax paid to another state can be claimed as a tax credit, but usually it can. As a resident of MN, all of Sven's income is subject to taxation by MN.

This is a different situation that the OP describes, but I think it describes how the W-2 income reported for MN and CO totals more than the federal income. The employer reported it as if the OP was a CO resident who earned a small portion of his income in MN, and it was subject to withholding.


Yeah this sounds like what I'm dealing with. Thanks for the help everyone, I'll let you know if I have any more questions.
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Re: Income tax withheld for wrong state, how to file?

Postby Ace1 » Wed Feb 06, 2013 11:51 pm

I don't think it is possible for someone to be in two states at the same time.
In the Sven example, the $5k was earned in IL, not in MN.
The MN income earned in that state is $55k.
If the employer issued an incorrect w2, the employer needs to issue a corrected w2 (w2c).
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Re: Income tax withheld for wrong state, how to file?

Postby HouseStark » Thu Feb 07, 2013 10:20 am

Ace1 wrote:I don't think it is possible for someone to be in two states at the same time.
In the Sven example, the $5k was earned in IL, not in MN.
The MN income earned in that state is $55k.
If the employer issued an incorrect w2, the employer needs to issue a corrected w2 (w2c).


You are correct that is not possible to be in two states at the same time, but that is irrelevant. As a resident of MN, in this example, ALL income that Sven earns ANYWHERE is subject to MN taxation, unless it is specifically exempted, which it would not be in this case. This is simply how income taxation works. That is different from actually changing residency and tax home to a different state. Sven did not cease his MN residency. He just worked temporarily in IL. If Sven moves mid-year to IL with intention of staying there, then he is no longer a MN resident and the income he earns in IL from that point on is only subject to IL taxation and not MN.

This is analogous to taxation on the federal level. For a US citizen ALL income you earn ANYWHERE is subject to US taxation, unless specifically exempted. That is why the IRS goes after owners of Swiss Bank accounts and the like. They earn foreign investment income, but that income is still subject to US taxation. It would be the same for wage income earned abroad. If a US citizen works a job in a foreign country that earned income is subject to US taxation. There is a POSSIBLE exemption for foreign earned income, but only if you meet all the requirements and report the income on your tax return.

I don't always know what I'm talking about, but in this case I think I do. I'm a tax preparer who works on hundreds of personal tax returns every year and deal with multi-state issues regularly.
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Re: Income tax withheld for wrong state, how to file?

Postby scrabbler1 » Thu Feb 07, 2013 11:00 am

I agree with HouseStark's posts.

For 8 years I worked in New Jersey even though I live in New York. I received three W-2 forms, one for the Feds, one for New York, and a third one for New Jersey. The NY and Fed ones were similar because they had the same definition of income. But the NJ one had a slightly higher wage income amount because NJ had a slightly different definition of income (pretax medical and pretax transit deductions were disallowed and got added back to income).

I filed a NJ non-resident income tax return which included, of course, the NJ W-2 form. The tax due to NJ became a tax credit on my NY tax return, using a NY resident credit tax form. (NJ has lower tax rates than NY does, so the credit on the NY form was a carve-out, leaving about half of the NY taxes due intact.)

In one of those years, my payroll department, in a rare goof, did not properly allocate the NY and NJ taxes withheld from a large bonus I received (unlike in regular paycheck, allocating all of it to NY instead of about a 50-50 split). This ended up in my owing several hundred dollars to NJ while receiving several hundred dollars from NY. At the end of the year, I had to check to see I was not going to get hit with any underpayment penalties for NJ (I was fine, in a "safe harbor").

Not having worked in NJ since 2008, I am very glad I no longer have to deal with any more NJ non-resident income tax forms or the NY resident credit form, both rather annoying forms (especially the NJ one) to complete. :)
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Re: Income tax withheld for wrong state, how to file?

Postby JordanIB » Thu Feb 07, 2013 11:06 am

scrabbler1 wrote:I agree with HouseStark's posts.

For 8 years I worked in New Jersey even though I live in New York. I received three W-2 forms, one for the Feds, one for New York, and a third one for New Jersey. The NY and Fed ones were similar because they had the same definition of income. But the NJ one had a slightly higher wage income amount because NJ had a slightly different definition of income (pretax medical and pretax transit deductions were disallowed and got added back to income).

I filed a NJ non-resident income tax return which included, of course, the NJ W-2 form. The tax due to NJ became a tax credit on my NY tax return, using a NY resident credit tax form. (NJ has lower tax rates than NY does, so the credit on the NY form was a carve-out, leaving about half of the NY taxes due intact.)

In one of those years, my payroll department, in a rare goof, did not properly allocate the NY and NJ taxes withheld from a large bonus I received (unlike in regular paycheck, allocating all of it to NY instead of about a 50-50 split). This ended up in my owing several hundred dollars to NJ while receiving several hundred dollars from NY. At the end of the year, I had to check to see I was not going to get hit with any underpayment penalties for NJ (I was fine, in a "safe harbor").

Not having worked in NJ since 2008, I am very glad I no longer have to deal with any more NJ non-resident income tax forms or the NY resident credit form, both rather annoying forms (especially the NJ one) to complete. :)


Dealing with this now for the first time as a NY resident working in CT. An annoying extra step (and extra cost for a 2nd state tax software).
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Re: Income tax withheld for wrong state, how to file?

Postby scrabbler1 » Thu Feb 07, 2013 1:07 pm

Jordan, in case you haven't already figured it out, the NY resident credit form is IT-112-R. http://www.tax.ny.gov/pdf/2012/fillin/inc/it112r_2012_fill_in.pdf

Column B is your CT income, so it is probably going to be only your wage income, not your investment income. I am not familiar with how to complete CT's non-resident form but I found it and its instructions here:

http://www.ct.gov/drs/lib/drs/forms/2012forms/incometax/ct-1040nrpybooklet.pdf
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Re: Income tax withheld for wrong state, how to file?

Postby Sidney » Thu Feb 07, 2013 1:39 pm

HouseStark wrote:Getting a corrected W-2 would be the best option.

Yes, if the W2 is incorrect, it should be corrected. This isn't that difficult to do. I have had it done several times.
I always wanted to be a procrastinator.
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Re: Income tax withheld for wrong state, how to file?

Postby Ace1 » Thu Feb 07, 2013 11:38 pm

HouseStark
I think you missed the point of my post. I don't believe it is possible for the sum of the two state incomes on the w2 to exceed the total income in your example. In your example the w2 would show $65000 of total state income .... not possible if the total earned was only $60000. There is a difference between where it is earned/reported on the w2 and where/how it is taxed.
I agree that some income (in your example) is taxable in both states and that some non resident filing is certainly in order, and most likely there will be some reciprocity and appropriate credits (either income or tax). I'm not challenging WHAT is taxable to MN, only how the w2 should be prepared. So my post indicates the w2 in this example should be corrected to show total state income of 60000, state income in MN of 55000 and state income in IL of 5000. What/how much is taxable in either state is determined on each states appropriate tax return as you clearly know.
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Re: Income tax withheld for wrong state, how to file?

Postby pshonore » Fri Feb 08, 2013 9:08 am

I see a lot of W2s and there appears to be no rhyme or reason as to how multi-state income is reported. Most states base RESIDENT taxes on Federal income with adjustments and will usually credit a portion of taxes paid to another state. NONRESIDENT or PART YEAR taxes are usually (but not always) based on Federal income and then propotioned by the ratio of the particular state to the total. It all seems to work out in the end but it sure can get confusing.
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Re: Income tax withheld for wrong state, how to file?

Postby MarkNYC » Fri Feb 08, 2013 1:18 pm

Ace1 wrote:I don't believe it is possible for the sum of the two state incomes on the w2 to exceed the total income in your example. In your example the w2 would show $65000 of total state income .... not possible if the total earned was only $60000. ... So my post indicates the w2 in this example should be corrected to show total state income of 60000, state income in MN of 55000 and state income in IL of 5000.

Different payroll services seem to have different procedures for listing the resident state wage amount when some or all of the wages are earned in nonresident state. But in most cases it does not matter. In the example listed, as a full year MN resident, all $60,000 of the federal wages are taxable on his MN resident tax return, regardless of whether the W-2 shows $60,000 or $55,000 in the MN state wage box, so there is no practical purpose for requesting a corrected W-2.
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Re: Income tax withheld for wrong state, how to file?

Postby HouseStark » Fri Feb 08, 2013 3:06 pm

Ace1 wrote:HouseStark
I think you missed the point of my post. I don't believe it is possible for the sum of the two state incomes on the w2 to exceed the total income in your example. In your example the w2 would show $65000 of total state income .... not possible if the total earned was only $60000. There is a difference between where it is earned/reported on the w2 and where/how it is taxed.
I agree that some income (in your example) is taxable in both states and that some non resident filing is certainly in order, and most likely there will be some reciprocity and appropriate credits (either income or tax). I'm not challenging WHAT is taxable to MN, only how the w2 should be prepared. So my post indicates the w2 in this example should be corrected to show total state income of 60000, state income in MN of 55000 and state income in IL of 5000. What/how much is taxable in either state is determined on each states appropriate tax return as you clearly know.


Ace1,
I don't think I missed your point, because I'm stating that it is possible, and correct, for the two state incomes to add up to more than the $60,000 total income. This isn't a violation of mathematics, it's multi-state income reporting. The W-2 issuer is calling MN income $60,000 because the employee was a MN resident the full year, while also properly designating $5000 as IL income. The $5000 is a subset of the $60,000 because the employee was a MN resident and an IL non-resident and the W-2 is treating the income of the two states based on that fact. I'm not just saying it because it makes sense to me, but because I've seen it a number of times in doing taxes over the years.

I agree when MarkNYC states that it doesn't necessarily make a difference because as a MN resident, Sven's MN income will be based upon the $60,000 federal taxable income, in any case. I also agree that there is probably a lack of consistency in multi-state reporting on W-2s, but I've definitely seen it as I have described and had not reason to find it incorrect.
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