LA State Income Tax incorrectly withheld after move to TX

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jediclampet
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LA State Income Tax incorrectly withheld after move to TX

Post by jediclampet »

In April, I accepted a position in TX while living in LA. I started working remotely for the first couple of months but then I moved to TX to work onsite. I recently noticed that the employer was still withholding LA taxes even though I'd lived in TX for over 5 months and I'd changed my address in the employers computer system. (Yes, my fault for being so slow to notice.) TX has no state income tax.

When I notified the payroll department, they said they'd fixed the problem so that LA taxes will no longer be withheld. But I paid over $1700 in LA taxes while living in TX. How do I get reimbursed? Do I go through my employer or the IRS?
Sidney
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by Sidney »

This has nothing to do with the IRS. The employer should refund you the amount and adjust their payroll tax filings with LA.
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bberris
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by bberris »

You will have to file a LA tax return anyway. Withholding does not determine how much tax you pay or where you live. You can get a tax refund the same way everyone else does.
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jediclampet
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by jediclampet »

bberris wrote:You will have to file a LA tax return anyway. Withholding does not determine how much tax you pay or where you live. You can get a tax refund the same way everyone else does.
So you are saying the ~$1700 will be included on my LA state income tax return, so I don't need to have my employer reimburse me?
sscritic
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by sscritic »

While your employer may or may not make the adjustment that Sidney suggests, you will still only pay LA what you should pay LA as long as you fill out your LA tax return correctly. Making an adjustment now only changes the amount of refund you will get later.

Just think, now you have an incentive to do your taxes early and not wait until April to get your hands on all that money.

P.S. My experience with getting an employer to make an adjustment is that they will screw it up. I would just wait, although there is a chance that if the employer screws up, it will be in your favor. It was in mine, even after I tried several times to get them to fix their incorrect adjustment.
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by sscritic »

jediclampet wrote: So you are saying the ~$1700 will be included on my LA state income tax return, so I don't need to have my employer reimburse me?
No, it will be included as LA withholding on your W-2. It won't make it to your LA state income tax return unless you put it there on the correct line for LA state withholding.
manwithnoname
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by manwithnoname »

jediclampet wrote:
bberris wrote:You will have to file a LA tax return anyway. Withholding does not determine how much tax you pay or where you live. You can get a tax refund the same way everyone else does.
So you are saying the ~$1700 will be included on my LA state income tax return, so I don't need to have my employer reimburse me?
Sidney is incorrect. Your employer will not reimburse you the excess LA tax withheld because payments have been remitted to the LA treasury Dept. You will get a refund when you file your LA tax return for 2013.
pshonore
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by pshonore »

His W2 should reflect proper earnings in LA (if any) and the withholding. Lets say the LA "wages" are 40% of gross. Most states will figure tax due on ALL your income and since 40% was from LA, they'll charge you 40% of the total calculated (for a part year resident). He needs to make sure his LA wages on the W2 are correct
Sidney
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by Sidney »

manwithnoname wrote:
jediclampet wrote:
bberris wrote:You will have to file a LA tax return anyway. Withholding does not determine how much tax you pay or where you live. You can get a tax refund the same way everyone else does.
So you are saying the ~$1700 will be included on my LA state income tax return, so I don't need to have my employer reimburse me?
Sidney is incorrect. Your employer will not reimburse you the excess LA tax withheld because payments have been remitted to the LA treasury Dept. You will get a refund when you file your LA tax return for 2013.
If the employer corrects their LA payroll tax filings, they should get the money back from LA and credit the employee. In my prior life, my payroll department did this many times (they worked for me and they did this on my behalf a couple of times). If they choose not to do it, the individual can file for the refund when they file a return with LA.

pshonore is correct, the taxpayer needs to make sure that the W2 gets reported correctly even if they don't adjust the withholding.
I always wanted to be a procrastinator.
jebmke
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by jebmke »

Sidney wrote:If the employer corrects their LA payroll tax filings, they should get the money back from LA and credit the employee. In my prior life, my payroll department did this many times (they worked for me and they did this on my behalf a couple of times). If they choose not to do it, the individual can file for the refund when they file a return with LA.
I've been in both situations. Once they adjusted the W/H to the correct amount and another time, it was not worth the trouble since I knew I'd get it back. The second time they did not get the W2 correct and I had to get them to issue a corrected W2
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Calm Man
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by Calm Man »

bberris wrote:You will have to file a LA tax return anyway. Withholding does not determine how much tax you pay or where you live. You can get a tax refund the same way everyone else does.
This.
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by Calm Man »

Sidney wrote:
manwithnoname wrote:
jediclampet wrote:
bberris wrote:You will have to file a LA tax return anyway. Withholding does not determine how much tax you pay or where you live. You can get a tax refund the same way everyone else does.
So you are saying the ~$1700 will be included on my LA state income tax return, so I don't need to have my employer reimburse me?
Sidney is incorrect. Your employer will not reimburse you the excess LA tax withheld because payments have been remitted to the LA treasury Dept. You will get a refund when you file your LA tax return for 2013.
If the employer corrects their LA payroll tax filings, they should get the money back from LA and credit the employee. In my prior life, my payroll department did this many times (they worked for me and they did this on my behalf a couple of times). If they choose not to do it, the individual can file for the refund when they file a return with LA.

pshonore is correct, the taxpayer needs to make sure that the W2 gets reported correctly even if they don't adjust the withholding.
Sidney,
I wouldn't advise making a stink with the employer on this as it could get worse. As long as the extra LA withholding has stopped, it has stopped. And if the employer has paid LA already, they "ain't" getting it back nor making the effort to. This happened to me once and I simply got a larger refund because more was withheld. No big deal in a time of zero short term interest rates. And on $1700 it is meaningless.
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by jebmke »

Calm Man wrote:I wouldn't advise making a stink with the employer on this as it could get worse. As long as the extra LA withholding has stopped, it has stopped. And if the employer has paid LA already, they "ain't" getting it back nor making the effort to. This happened to me once and I simply got a larger refund because more was withheld. No big deal in a time of zero short term interest rates. And on $1700 it is meaningless.
True, but you have to make sure you inform the employer anyway since they have to make sure that the LA income is correct on the W2. If it is a larger employer that has a presence in LA anyway, they would probably do this automatically since it is just an offset on the quarterly payments they already may be making. For a smaller employer, it might be a hassle. Smaller employer also may be more likely to screw up the LA income on the W2.

I used to always check my W2 thoroughly. Payroll departments in large companies process huge amounts of data and are prone to errors just due to the large numbers. More than once I had to get a corrected W2. That's one reason why I never filed taxes until October.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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jediclampet
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by jediclampet »

jebmke wrote:
Calm Man wrote:I wouldn't advise making a stink with the employer on this as it could get worse. As long as the extra LA withholding has stopped, it has stopped. And if the employer has paid LA already, they "ain't" getting it back nor making the effort to. This happened to me once and I simply got a larger refund because more was withheld. No big deal in a time of zero short term interest rates. And on $1700 it is meaningless.
True, but you have to make sure you inform the employer anyway since they have to make sure that the LA income is correct on the W2. If it is a larger employer that has a presence in LA anyway, they would probably do this automatically since it is just an offset on the quarterly payments they already may be making. For a smaller employer, it might be a hassle. Smaller employer also may be more likely to screw up the LA income on the W2.

I used to always check my W2 thoroughly. Payroll departments in large companies process huge amounts of data and are prone to errors just due to the large numbers. More than once I had to get a corrected W2. That's one reason why I never filed taxes until October.
This is a large employer in TX.
bberris
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by bberris »

This raises an interesting question. If OP's employer reports on the W2 Louisiana income that is higher than is true (ie he was living in TX at the time he earned it) will he get away with reporting less on his LA tax return? Louisiana is rather aggressive in assuming you are leaving temporarily and call you a resident, even when you are not living there. To avoid being taxed by LA, the key is to make sure his W2 is filed correctly. In other words, OP, you need to worry about your W2, not about your withholding.

I would further make sure you change all of your recorded addresses, register to vote,get a TX drivers license, sell your LA property, etc. Banish all trace of LA and become Texan. Getcha some of em pointy boots.
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jediclampet
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Re: LA Sate Income Tax incorrectly withheld after move to TX

Post by jediclampet »

bberris wrote:This raises an interesting question. If OP's employer reports on the W2 Louisiana income that is higher than is true (ie he was living in TX at the time he earned it) will he get away with reporting less on his LA tax return? Louisiana is rather aggressive in assuming you are leaving temporarily and call you a resident, even when you are not living there. To avoid being taxed by LA, the key is to make sure his W2 is filed correctly. In other words, OP, you need to worry about your W2, not about your withholding.

I would further make sure you change all of your recorded addresses, register to vote,get a TX drivers license, sell your LA property, etc. Banish all trace of LA and become Texan. Getcha some of em pointy boots.
So I should try to talk to someone in my employer's payroll department to make sure they report the correct income earned in TX and LA?
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Re: LA State Income Tax incorrectly withheld after move to T

Post by bberris »

Yes, do that. Also take the other actions, because LA will see your federal return. Don't do anything that would indicate you are planning a return to LA. If they think this is a temporary work trip, they will tax your TX income.
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Re: LA State Income Tax incorrectly withheld after move to T

Post by manwithnoname »

bberris wrote:Yes, do that. Also take the other actions, because LA will see your federal return. Don't do anything that would indicate you are planning a return to LA. If they think this is a temporary work trip, they will tax your TX income.
Not exactly.

Most states do not review IRS tax data because of a shortage of resources/staff and unless the state definition of income exactly tracks the fed definition there will usually be differences in the amounts reported, e.g, most states do not include SS as income while others include all SS as income.

All states allow taxpayers to pro rate state income based on period of residency during the year which will result in different numbers reported on state tax return. Few states have time or personnel to go through discrepancies in state w-2 income on a one off basis to determine if there is under reporting of income. Most important data is the amount of state income tax withheld reported on w-2.
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Re: LA State Income Tax incorrectly withheld after move to T

Post by sscritic »

manwithnoname wrote: All states allow taxpayers to pro rate state income based on period of residency during the year which will result in different numbers reported on state tax return.
So if I live all-year in Nevada and work in CA, I don't have to pay CA income tax? No residency, no tax. I like that idea. :)

P.S. I think most states tax source income; I know CA does. It doesn't matter where you live. For example: live first six months in Nevada and make $20k from a Nevada job; move to CA July 1 and make $80k from a CA job. CA will tax $80k, not $50k, the "pro-rate by residency" portion of your $100k of income.
Last edited by sscritic on Sun Nov 10, 2013 8:13 am, edited 1 time in total.
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Re: LA State Income Tax incorrectly withheld after move to T

Post by jebmke »

sscritic wrote:
manwithnoname wrote: All states allow taxpayers to pro rate state income based on period of residency during the year which will result in different numbers reported on state tax return.
So if I live all-year in Nevada and work in CA, I don't have to pay CA income tax? No residency, no tax. I like that idea. :)

P.S. I think most states tax source income; I know CA does. It doesn't matter where you live.
Maryland does as well. I do dozens of returns for DE residents who work in MD - they pay MD taxes. They get a credit against DE taxes but unfortunately, the MD tax liability often exceeds the DE tax so their credit is limited. I am pretty sure Wisconsin does similar -- I worked in Wisconsin for over a year but lived in MD - my earnings were reported in WI. That is why it is important that the W2 correctly reflect the income earned in the state where it was earned.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: LA State Income Tax incorrectly withheld after move to T

Post by manwithnoname »

sscritic wrote:
manwithnoname wrote: All states allow taxpayers to pro rate state income based on period of residency during the year which will result in different numbers reported on state tax return.
So if I live all-year in Nevada and work in CA, I don't have to pay CA income tax? No residency, no tax. I like that idea. :)

P.S. I think most states tax source income; I know CA does. It doesn't matter where you live. For example: live first six months in Nevada and make $20k from a Nevada job; move to CA July 1 and make $80k from a CA job. CA will tax $80k, not $50k, the "pro-rate by residency" portion of your $100k of income.
I was responding to the OP's situation where he was a part year resident of LA. Your facts are different. If you work in a state you will be taxed on income earned in that state. CA has a unique system of taxing global income, i.e, CA income tax is due on portion of employee's global income that is earned in CA which is why in your example employee is taxed on 80% of global income earned in the year which was CA source income.

Taxation of remote employees is different and every state has its own rules or lack of rules. NY taxes income from remote employment if the employee works in NY for a minimum period in a year. Remote employees are also exempt from NY taxation if there is a business necessity for working out of state.
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Re: LA State Income Tax incorrectly withheld after move to T

Post by sscritic »

manwithnoname wrote: I was responding to the OP's situation where he was a part year resident of LA. Your facts are different.
What is different? He worked and lived part of the year in LA. He then worked and lived part of the year in Texas. In my example, the person worked and lived part of the year in Nevada. He then worked and lived part of the year in CA. What I see is different is the two states involved. I don't know LA and Texas tax law, although I do know that LA uses "Le Code Napoléon" in some regards. But you said "all states." I don't think "all" was correct. Perhaps the OP and my example are different, and I am just not seeing it.

Edit: I see you used the word "unique." How do you reconcile "all" with "unique"? I don't know how to do it.
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Re: LA State Income Tax incorrectly withheld after move to T

Post by manwithnoname »

sscritic wrote:
manwithnoname wrote: I was responding to the OP's situation where he was a part year resident of LA. Your facts are different.
What is different? He worked and lived part of the year in LA. He then worked and lived part of the year in Texas. In my example, the person worked and lived part of the year in Nevada. He then worked and lived part of the year in CA. What I see is different is the two states involved. I don't know LA and Texas tax law, although I do know that LA uses "Le Code Napoléon" in some regards. But you said "all states." I don't think "all" was correct. Perhaps the OP and my example are different, and I am just not seeing it.

Edit: I see you used the word "unique." How do you reconcile "all" with "unique"? I don't know how to do it.
Difference is in amount of taxable income used to determine state income tax. Most states base income tax upon income earned while a resident of the state. If you earn 40k as a LA resident and then move to TX where you earn 60 k your LA tax is based on 40k earned while a resident of LA. 60k earned after you move to TX is excluded in calculating LA tax.

As I understand it CA tax is based upon global income for the year whether or not you were a CA resident at the time the income is earned. If you earned 40k as a resident of NV before you move to CA and earn 60k after you move to CA, CA includes the 40k you earned in NV as CA income (100k) and then determines your CA income tax as a pro rata amount based upon the income earned from CA sources.

Only other state I know of that determines state income tax of non residents as a % of global income is NY which taxes non residents on the proportionate % of NY tax that the NY state income bears to federal income as defined under NYS tax law.
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Re: LA State Income Tax incorrectly withheld after move to T

Post by sscritic »

I don't think you are correct about CA. But I have another question first. When I read your first post and these words,
All states allow taxpayers to pro rate state income based on period of residency during the year
I interpreted it to mean prorate income based on the length of the period of residency. I now think you meant prorate based on the income received during the period of residency. When I see period, I think time, like 4 months and 8 months, not $40k and $60k. Is that the basis of our disconnect? (other than all not meaning all when you use the word)

If a state taxes income received while a resident of that state, I don't call that prorating. I thought prorating was figuring out some percentage based on some criterion, like time in residency, and then applying that percentage to a total. Taxing income received in each state separately isn't prorating in my understanding of the word.

P.S. From the FTB (short version):
Part-year residents of California - Taxed on all income received while a resident and only on income from California sources while a nonresident.
Sometimes proration is used to determine what "from California sources" means.
In order to determine the California source income of a nonresident team sport athlete, the "duty day" method should be used.

A "duty day" is defined as "any day services are performed under the contract from the beginning of an official preseason activity until the last game played". The "duty days" in California are then divided by the total "duty days" to create a ratio. This ratio is then multiplied by the total compensation. This then is deemed to be the California source income.

Performance bonuses should be included in the income to be allocated within and without California if any of the conditions to receive the bonus were met or partially met while performing services in California. The signing bonus issue is dealt with on a case by case basis with an examination of the wording of the contract. If services must be performed to receive or keep the signing bonuses and if any of those services are performed or partially performed in California, then the signing bonus should be included in the compensation to be allocated within and without California.
Most pro athletes from outside CA like to arrive late and leave early from CA to keep the CA duty days down, but they usually don't have a choice. :)
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Re: LA State Income Tax incorrectly withheld after move to T

Post by grabiner »

manwithnoname wrote:All states allow taxpayers to pro rate state income based on period of residency during the year which will result in different numbers reported on state tax return. Few states have time or personnel to go through discrepancies in state w-2 income on a one off basis to determine if there is under reporting of income. Most important data is the amount of state income tax withheld reported on w-2.
The proration rules for part-year residents vary. If you earn $40K while a resident of state X and $60K while a resident of state Y, state X may tax you either at 40% of the tax for $100K, or at the regular tax rate on $40K. In this situation, your W-2 should show $40K of state X wages and $60K of state Y wages. (I encountered this situation when I moved from MD to NJ in November 2010. NJ doesn't prorate, so my NJ tax rate was based only on the income I earned in November and December. This put me in an unusually low tax bracket, and gave me a big refund since the NJ withholding was based on my being a full-year NJ resident.)

Almost all states prorate based on income for non-residents who earn income from sources in the state. If you earn $40K working in state X of your total $100K, then state X will usually tax you at 40% of the tax for $100K. And this may not be reflected on your W-2; if you live in state Y but do some work in state X, and your employer continues to withhold state Y tax, your W-2 may list all the wages as earned in state Y. You do have to report all the income to state Y, but you can get a credit for tax paid to state X.
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Re: LA State Income Tax incorrectly withheld after move to T

Post by manwithnoname »

grabiner wrote:
manwithnoname wrote:All states allow taxpayers to pro rate state income based on period of residency during the year which will result in different numbers reported on state tax return. Few states have time or personnel to go through discrepancies in state w-2 income on a one off basis to determine if there is under reporting of income. Most important data is the amount of state income tax withheld reported on w-2.
The proration rules for part-year residents vary. If you earn $40K while a resident of state X and $60K while a resident of state Y, state X may tax you either at 40% of the tax for $100K, or at the regular tax rate on $40K. In this situation, your W-2 should show $40K of state X wages and $60K of state Y wages. (I encountered this situation when I moved from MD to NJ in November 2010. NJ doesn't prorate, so my NJ tax rate was based only on the income I earned in November and December. This put me in an unusually low tax bracket, and gave me a big refund since the NJ withholding was based on my being a full-year NJ resident.)

Almost all states prorate based on income for non-residents who earn income from sources in the state. If you earn $40K working in state X of your total $100K, then state X will usually tax you at 40% of the tax for $100K. And this may not be reflected on your W-2; if you live in state Y but do some work in state X, and your employer continues to withhold state Y tax, your W-2 may list all the wages as earned in state Y. You do have to report all the income to state Y, but you can get a credit for tax paid to state X.
Not exactly.

Some states do not allow for credits paid to state where you work. For example NJ residents who work in NY get a credit against NJ income tax for amount of NY income tax. However, NY residents who work in NJ pay tax to both states because NY does not give a tax credit for amount of NJ tax paid. NY does not allow an itemized deduction for state income taxes.

Other states have compacts not to tax residents of another state. NJ and PA do not tax each others residents who work in the state. PA residents who work in NJ are only subject to PA tax and NJ residents who work in PA only pay NJ tax.
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Re: LA State Income Tax incorrectly withheld after move to T

Post by pshonore »

manwithnoname wrote:
grabiner wrote:
manwithnoname wrote:All states allow taxpayers to pro rate state income based on period of residency during the year which will result in different numbers reported on state tax return. Few states have time or personnel to go through discrepancies in state w-2 income on a one off basis to determine if there is under reporting of income. Most important data is the amount of state income tax withheld reported on w-2.
The proration rules for part-year residents vary. If you earn $40K while a resident of state X and $60K while a resident of state Y, state X may tax you either at 40% of the tax for $100K, or at the regular tax rate on $40K. In this situation, your W-2 should show $40K of state X wages and $60K of state Y wages. (I encountered this situation when I moved from MD to NJ in November 2010. NJ doesn't prorate, so my NJ tax rate was based only on the income I earned in November and December. This put me in an unusually low tax bracket, and gave me a big refund since the NJ withholding was based on my being a full-year NJ resident.)

Almost all states prorate based on income for non-residents who earn income from sources in the state. If you earn $40K working in state X of your total $100K, then state X will usually tax you at 40% of the tax for $100K. And this may not be reflected on your W-2; if you live in state Y but do some work in state X, and your employer continues to withhold state Y tax, your W-2 may list all the wages as earned in state Y. You do have to report all the income to state Y, but you can get a credit for tax paid to state X.
Not exactly.

Some states do not allow for credits paid to state where you work. For example NJ residents who work in NY get a credit against NJ income tax for amount of NY income tax. However, NY residents who work in NJ pay tax to both states because NY does not give a tax credit for amount of NJ tax paid. NY does not allow an itemized deduction for state income taxes.

Other states have compacts not to tax residents of another state. NJ and PA do not tax each others residents who work in the state. PA residents who work in NJ are only subject to PA tax and NJ residents who work in PA only pay NJ tax.
Are you saying there is double taxation for NY residents who work in NJ? I think not.

From NY Tax Form IT 112 R1
If you were a full-year or part-year resident of New York State, or a New York State resident estate or trust, or a part-year resident trust, and you had income sourced to and taxed by another state, a local government within another state, or the District of Columbia, you may claim a credit against your New York State tax. This credit is allowable only for the portion of the tax that applies to income sourced to and taxed by the other taxing authority while you were a New York State resident.
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Re: LA State Income Tax incorrectly withheld after move to T

Post by grabiner »

manwithnoname wrote:
grabiner wrote:Almost all states prorate based on income for non-residents who earn income from sources in the state. If you earn $40K working in state X of your total $100K, then state X will usually tax you at 40% of the tax for $100K. And this may not be reflected on your W-2; if you live in state Y but do some work in state X, and your employer continues to withhold state Y tax, your W-2 may list all the wages as earned in state Y. You do have to report all the income to state Y, but you can get a credit for tax paid to state X.
Not exactly.

Some states do not allow for credits paid to state where you work. For example NJ residents who work in NY get a credit against NJ income tax for amount of NY income tax. However, NY residents who work in NJ pay tax to both states because NY does not give a tax credit for amount of NJ tax paid.
I looked this up. Page 26 of the NY resident tax instructions says to claim this credit on Form IT-112-R It is computed in the usual way; the credit is the lesser of the amount you paid to NJ, or a prorated share of your NY income tax. I am not aware of any state which does not allow a credit for tax paid to another state.

There are some limitations to the credit, primarily with local taxes. MD, for example, has a single form for both state and county tax. Tax paid to another state can be taken as a credit against the state tax, but neither tax paid to another state nor tax paid to an out-of-state county or city can be taken as a credit against the county tax.
Other states have compacts not to tax residents of another state. NJ and PA do not tax each others residents who work in the state. PA residents who work in NJ are only subject to PA tax and NJ residents who work in PA only pay NJ tax.
This is correct; many states with a lot of commuters have this type of reciprocity. It only applies to wages; NJ residents who earn other types of income with a source in PA (for example, selling property in PA) do have to pay PA tax and claim a credit.

The reciprocity simplifies the process, and often avoids credit limitations. For example, MD and VA have reciprocity. MD residents who work in VA pay MD tax on all their salary; if they had to pay VA tax, they would probably not get the full tax back as a credit, because the VA state rate is higher than the MD state rate and the VA state tax cannot be credited against the MD county tax.
Wiki David Grabiner
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