State tax help-Live in one state, work in another (but used to live there too)

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misgnomer
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State tax help-Live in one state, work in another (but used to live there too)

Post by misgnomer » Wed Mar 25, 2020 3:34 pm

I'm working through doing our taxes on turbotax right now. Have finished federal and now am starting state returns. Have a little bit of a complicated state situation so hoping to get some guidance on how to file. My wife and I are doing MFJ. Here's our situation:

-First half of 2019: My wife and I both lived and worked in MI as employees. We have 2019 W2s for those jobs.
-Second half of 2019: We both moved to MN. I started a new employed job in MN and also have a 2019 W2 for that job. My wife quit her old job in MI and then started a new self-employed independent contractor job in a different part of MI with a different employer than before. This was work as a locum tenens physician. She lived with me in MN, which was her permanent residence at that time, but then would fly to MI once or twice a month for a few days at a time and then return. To make it more complicated, the staffing agency which she worked through for this locums job is based in WI. She received a 1099-Misc from them with their main headquarters address in WI listed. Of note, we never did set my wife up with an S-corp or LLC or anything like that.

Turbotax is asking for income allocations for each state. We are considered part-time residents for each state. For me, pretty straightforward in that I just enter the W2 amounts for each respective job I had in MI and then in MN. I know the W2 income my wife made while living and working in MI would go there. How do I allocate the state income amounts for my wife for this independent contractor job which is listed under business income? All of the work she did for this was physically in MI but while we lived in MN.

We also have a small amount of dividend, interest, and capital gain income from throughout the whole year. What do I allocated for that? Also, do I need to file any type of WI state return?

Appreciate any advice!

bloom2708
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Re: State tax help-Live in one state, work in another (but used to live there too)

Post by bloom2708 » Wed Mar 25, 2020 3:43 pm

What you put in for how long you lived in each state will split things up.

You will be filing in both MN and MI. Was it exactly 6 months to the day? I think you need to determine the day your residence transferred officially to MN. The day you got your MN licenses or the day you moved to MN. Each state may have slightly different rules to when you were or were no longer a resident.

This is very common, so I would just step through each carefully and read the fine print.
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senex
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Re: State tax help-Live in one state, work in another (but used to live there too)

Post by senex » Wed Mar 25, 2020 5:14 pm

Generally, state of residence taxes all income from all sources, and non-resident states tax income that is "sourced" from them (definitions of "source" differ). States I've lived have credited payments to other states (to prevent you from being double-taxed).

Most of your details are easy. The only tricky parts are unearned (interest/div/capgains) and your wife's WI W2.

Unearned is technically up to each state. Some states use "actual date" (you must tally based on actual dates you received interest/div/gains) and some use pro-rata (if you lived in X for 44% of the year, they would tax 44% of your unearned income). My sense is that most use pro-rata, so when amounts are small, most people don't bother trying to figure it out, they just assume pro-rata for both states, because it is easy to calculate, and correct on average, and less work for everyone.

Wife's W2 is harder. Not sure if it is WI source or MI source, or possibly a split or both. It may depend on number of days she was physically in MI. If no boglehead knows, you may have to carefully read each state's tax forms and/or hire professional advice for this question.

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misgnomer
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Re: State tax help-Live in one state, work in another (but used to live there too)

Post by misgnomer » Wed Mar 25, 2020 6:02 pm

Thanks for the input so far!

Based on the day we moved to MN from MI, we spent 54% of 2019 living in MI, 46% of 2019 in MN.

Also, to clarify for senex, my wife received a W2 for a job she worked in MI while also living there. She also received a 1099-misc for the other job when she was living in MN but then working in MI. That 1099-misc had the WI address on it. Never got a W2 with a WI address.

rooms222
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Re: State tax help-Live in one state, work in another (but used to live there too)

Post by rooms222 » Wed Mar 25, 2020 7:06 pm

Were this W-2 income on the later Michigan job, this would be relatively easy, as long as WI was not in the mix


Michigan has reciprocity for state taxes with both Wisconsin and Minnesota.

https://www.michigan.gov/taxes/0,4676,7 ... --,00.html


Wisconisn and Minnesota no longer have reciprocity with each other. https://www.revenue.wi.gov/Pages/FAQS/i ... cipro.aspx

This means that if it were wages (W-2) you should pay no tax to Michigan at the point you became a MN resident, even for working in MI. You would instead pay MN tax on your income on your wife's second job of the year. Because WI no longer has reciprocity with MN, it would be better she stay a MI resident until the end of the year, especially as she was still physically present there much of the year working. Also, MI could question did you really become a MN resident at the time you claimed when still working physically in MI and not living physically in MN.


Since her latter job was 1099 income, it does not really fall into the wage reciprocity agreement but earned income. Michigan will expect it's cut of the earnings then.
Michigan has a combined non and part year resident form, so you would attribute the 1099 income from your schedule C to box 7b as income attributible to Michigan, as that is where it was physically earned. The other option is to change the date she became a MN resident, as she was arguablely still residning in MI at that time.

Wisconsin is going to get notice of the 1099, so be prepared to be asked about that in the future, but this is Michigan-based income.

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