How to fix taxes paid to wrong state

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Topic Author
taxthrowaway1
Posts: 6
Joined: Mon Apr 08, 2019 10:40 am

How to fix taxes paid to wrong state

Post by taxthrowaway1 » Mon Apr 08, 2019 11:03 am

There are numerous threads online about this question, but I still don't fully understand.

I worked in NY all of last year, but my company accidentally showed me working mostly in CA (while correctly living the whole year in NYC, which may complicate things). They withheld lots for CA, some for NY (for the one month they thought I worked there), and lots for NYC.

They've fixed their records and will be sending me a corrected W-2 in a few weeks. I've been told I need to do the following:

1) File an extension with NY. Don't pay anything, since the CA withholding exceeds the NY liability (and it counts as a credit).
2) File an extension with CA. When I get the corrected W-2, file and get a full refund.
3) File with NY and pay whatever I owe.

I've been told that NY won't penalize me for under-withholding or the unpaid extension, but I don't understand why (or how). They would have to know that my company accidentally withheld for CA all year, and that I only got my refund much later.

Does this make sense to anyone?

Thanks!

PolarBearMarket
Posts: 61
Joined: Thu Sep 13, 2018 11:52 am

Re: How to fix taxes paid to wrong state

Post by PolarBearMarket » Mon Apr 08, 2019 11:44 am

taxthrowaway1 wrote:
Mon Apr 08, 2019 11:03 am
There are numerous threads online about this question, but I still don't fully understand.

I worked in NY all of last year, but my company accidentally showed me working mostly in CA (while correctly living the whole year in NYC, which may complicate things). They withheld lots for CA, some for NY (for the one month they thought I worked there), and lots for NYC.

They've fixed their records and will be sending me a corrected W-2 in a few weeks. I've been told I need to do the following:

1) File an extension with NY. Don't pay anything, since the CA withholding exceeds the NY liability (and it counts as a credit).
2) File an extension with CA. When I get the corrected W-2, file and get a full refund.
3) File with NY and pay whatever I owe.

I've been told that NY won't penalize me for under-withholding or the unpaid extension, but I don't understand why (or how). They would have to know that my company accidentally withheld for CA all year, and that I only got my refund much later.

Does this make sense to anyone?

Thanks!
The steps listed seem reasonable. Your question seems to be, "Why will New York not penalize me for late payment?" Every state has exceptions to late payment penalties. You can read New York's here: https://www.tax.ny.gov/pit/file/interes ... alties.htm

I'm no tax lawyer, but "My employer withheld for the wrong state" sounds like reasonable cause to me for paying late.

Skiandswim
Posts: 119
Joined: Tue Dec 21, 2010 3:24 pm

Re: How to fix taxes paid to wrong state

Post by Skiandswim » Tue Apr 09, 2019 1:55 am

If your employer is correcting your W2, they should be correcting the actual payments to CA and NY respectively. CA has information on how employers can make corrections to deposits. I would guess same for NY. Avoids having to file in two states due to error.
https://www.edd.ca.gov/payroll_taxes/Ho ... posits.htm

EdNorton
Posts: 151
Joined: Wed Jan 02, 2019 11:11 am

Re: How to fix taxes paid to wrong state

Post by EdNorton » Tue Apr 09, 2019 3:57 am

Not sure employer can just change amounts withheld in CA and NY. The W-2 just reports amounts actually withheld and paid in your name to those states. If those amounts were paid to CA in 2018, and not NY, they can't be changed.
Outside a dog, a book is man's best friend, inside a dog, it's too dark to read - Groucho

Ybsybs
Posts: 535
Joined: Thu Aug 28, 2014 4:28 pm

Re: How to fix taxes paid to wrong state

Post by Ybsybs » Tue Apr 09, 2019 5:18 am

I'd want to know the qualifications of the person who gave the state tax advice. If it were a CPA or a tax attorney with expertise related to the two states in question, I'd be confident to follow it. If not, I'd want to talk with an expert or spend a lot of time studying the tax code of the two states involved.

This year, I discovered a similar wrong state withholding in February. I managed to change the withholding to the appropriate state beginning with March pay dates. I chose to set my correct state withholding to a level that will cover all my current year state taxes owed. I plan to file in both states with the state tax filing in the incorrect state being for the purpose to retrieve my refund of the withholding paid in error.

Topic Author
taxthrowaway1
Posts: 6
Joined: Mon Apr 08, 2019 10:40 am

Re: How to fix taxes paid to wrong state

Post by taxthrowaway1 » Tue Apr 09, 2019 11:38 am

Skiandswim wrote:
Tue Apr 09, 2019 1:55 am
If your employer is correcting your W2, they should be correcting the actual payments to CA and NY respectively.
My employer isn't able/willing to change the withholding at this point, so the corrected W2 should show only box 16 (state wages) and not 17 (state tax withheld) changing.

MarkNYC
Posts: 1641
Joined: Mon May 05, 2008 7:58 pm

Re: How to fix taxes paid to wrong state

Post by MarkNYC » Tue Apr 09, 2019 6:19 pm

taxthrowaway1 wrote:
Mon Apr 08, 2019 11:03 am
I worked in NY all of last year, but my company accidentally showed me working mostly in CA (while correctly living the whole year in NYC, which may complicate things). They withheld lots for CA, some for NY (for the one month they thought I worked there), and lots for NYC.

They've fixed their records and will be sending me a corrected W-2 in a few weeks. I've been told I need to do the following:

1) File an extension with NY. Don't pay anything, since the CA withholding exceeds the NY liability (and it counts as a credit).
2) File an extension with CA. When I get the corrected W-2, file and get a full refund.
3) File with NY and pay whatever I owe.

I've been told that NY won't penalize me for under-withholding or the unpaid extension, but I don't understand why (or how). They would have to know that my company accidentally withheld for CA all year, and that I only got my refund much later.

Does this make sense to anyone?
Some of it does not make sense. Assuming you eventually receive a corrected CA W-2 showing zero CA-source wages but actual CA withholding, I suggest the following:

You can file your federal and NY tax returns now, and wait until receiving the corrected W-2 to file CA. No CA extension is needed if no CA tax is due. You will not receive any credit on your NY return for CA tax since your CA tax liability will be zero. NY will very likely hit you with an underpayment penalty for having no NY State withholding, and NY is not known as a state that is lenient when it comes to abating tax penalties. Their position is likely to be that for most of year you should have known from your paystubs that you incorrectly had zero NYS withholding and should have corrected it early on.

Alternatively, you can file federal and NY extensions and file all 3 returns when the corrected W-2 is received. You should pay NY the additional tax owed with any NY extension. When eventually filed, your CA nonresident tax return should show zero CA-source income, producing a full refund of the CA tax withheld. The additional tax you pay to NY should be mostly or totally offset by the CA tax refund you eventually receive.

Topic Author
taxthrowaway1
Posts: 6
Joined: Mon Apr 08, 2019 10:40 am

Re: How to fix taxes paid to wrong state

Post by taxthrowaway1 » Tue Apr 16, 2019 10:57 am

MarkNYC wrote:
Tue Apr 09, 2019 6:19 pm
Some of it does not make sense. Assuming you eventually receive a corrected CA W-2 showing zero CA-source wages but actual CA withholding, I suggest the following:

You can file your federal and NY tax returns now, and wait until receiving the corrected W-2 to file CA. No CA extension is needed if no CA tax is due. You will not receive any credit on your NY return for CA tax since your CA tax liability will be zero. NY will very likely hit you with an underpayment penalty for having no NY State withholding, and NY is not known as a state that is lenient when it comes to abating tax penalties. Their position is likely to be that for most of year you should have known from your paystubs that you incorrectly had zero NYS withholding and should have corrected it early on.

Alternatively, you can file federal and NY extensions and file all 3 returns when the corrected W-2 is received. You should pay NY the additional tax owed with any NY extension. When eventually filed, your CA nonresident tax return should show zero CA-source income, producing a full refund of the CA tax withheld. The additional tax you pay to NY should be mostly or totally offset by the CA tax refund you eventually receive.
Thanks! This is the same conclusion I eventually came to. I cannot wait til I get my CA refund to pay NY (which is unfortunate, because it's a lot of money).

Also, I called the NY tax dept and they recommended that I don't include the under-withholding penalty payment. When I get a letter about the penalty, send in a letter from my employer explaining their mistake. They weren't sure if that would work, but said it's my best bet.

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