Multi-state tax (am I understanding this correctly?)

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
Train2bogle
Posts: 16
Joined: Sat Aug 06, 2016 8:57 pm

Multi-state tax (am I understanding this correctly?)

Post by Train2bogle »

In 2020, I became self employed working from home. All of this work has taken place in my state of residence (PA).

In August, I am taking a vacation to Virginia but will also do some work. I am unsure if my line of work is relevant but it’s a small niche market.

From https://www.tax.virginia.gov/who-must-file

You must file an income tax return in Virginia if:

you are a resident of Virginia, part-year resident, or a nonresident, and
you are required to file a federal income tax return, and
you have Virginia adjusted gross income equal to or greater than the amounts below:

Filing Status Income Threshold
Single or married filing separately $11,950
Married filing jointly $23,900


Does this mean that as long as my income for the trip is under $23,900 (I’m married), I don’t have to pay any state income tax? Or would I have to pay PA income tax? Or am I just totally clueless? Is there anything else that I’m not thinking of?

Thanks
Joey Jo Jo Jr
Posts: 33
Joined: Mon Jun 21, 2021 11:38 pm

Re: Multi-state tax (am I understanding this correctly?)

Post by Joey Jo Jo Jr »

I can’t speak to PA or VA specifically, but generally your state of residence is going to tax you on all of your income, assuming that was your legal residence all year. However, you would get a credit to the extent another state taxed the same income.

Although the income threshold for filing may make this irrelevant, I’ve never heard of a state taxing you just because you vacationed there, unless you are actually selling something to people in the place of your vacation while you are there. For example, bringing some goods to sell or maybe meeting a service client in person.
calwatch
Posts: 405
Joined: Wed Oct 02, 2013 1:48 am

Re: Multi-state tax (am I understanding this correctly?)

Post by calwatch »

This article might be helpful: https://www.freep.com/story/money/perso ... 244398001/ and this guidance from Ernst and Young: https://www.ey.com/en_us/covid-19/covid ... provisions
Topic Author
Train2bogle
Posts: 16
Joined: Sat Aug 06, 2016 8:57 pm

Re: Multi-state tax (am I understanding this correctly?)

Post by Train2bogle »

Thanks for the responses. This seems to point me in a certain direction, but doesn’t give me 100% confidence.

Let’s say I earn $195k in PA and $5k in VA on vacation.

Since this is below the reporting threshold, I don’t need to claim anything for VA, right?

Then for PA I would have $200k in income, right? or is it $195k?
humblecoder
Posts: 674
Joined: Thu Aug 06, 2020 8:46 am

Re: Multi-state tax (am I understanding this correctly?)

Post by humblecoder »

I am not a lawyer, accountant, or tax professional.

To be honest, I never really thought about the possibility that one might owe state income tax to the state where you are vacationing. That seems strange to me - not to say that you aren't right, but I personally have never thought about that possibility. Good thing we vacation in Florida which has no state income tax!

This link says that if you are a VA non-resident (which you clearly are), you need to pay taxes on any Virginia-sourced income (https://www.tax.virginia.gov/residency- ... y_status-3):

A nonresident is a person who is not a domiciliary or actual resident of Virginia, but who received income from Virginia sources during the taxable year.

"Income from Virginia sources" means income derived from labor performed, business conducted, or property held in Virginia, as well as lottery prizes and certain gambling winnings.


Whether the activities that you are performing qualify as "business conducted" is a question best left to the professionals. I don't know what VA's standard is for "business conducted".

On the other hand, there does appear to be a reciprocity agreement being VA and PA (https://www.tax.virginia.gov/reciprocity). You are exempt from VA taxes if:

Maryland, Pennsylvania, or West Virginia Residents who:
Are taxed in your home state, and
Are present in Virginia for 183 days or less during the year, and
Do not maintain an abode, such as a house or apartment, in Virginia, and
Receive only wage or salary income in Virginia.


Whether your business income is considered to be "wage or salary income" is another question for the professionals.

This all might be a moot point if your income falls below a certain threshold. Or maybe just enjoy your vacation and don't work :beer

Also, generally speaking, your state of residence will tax all of your income, even income earned out of state. However, I cannot confirm if this is the case for PA with 100% certainty never having lived in that fine commonwealth.
idunno246
Posts: 18
Joined: Fri Nov 19, 2010 6:59 pm

Re: Multi-state tax (am I understanding this correctly?)

Post by idunno246 »

Then for PA I would have $200k in income, right? or is it $195k?
its always 200k of PA income since thats your state of residence, even if its 100k/100k split.

my understanding is technically youre correct, if you do 5k of work in va you have 5k of VA sourced income. so yea its under and you dont have to file. in practice though i cant imagine VA can track it that closely even if it was over.

Sports players for instance owe taxes in every state they play a game, but thats a lot of money, and location is public.
HootingSloth
Posts: 597
Joined: Mon Jan 28, 2019 3:38 pm

Re: Multi-state tax (am I understanding this correctly?)

Post by HootingSloth »

Train2bogle wrote: Thu Jul 22, 2021 10:59 am Thanks for the responses. This seems to point me in a certain direction, but doesn’t give me 100% confidence.

Let’s say I earn $195k in PA and $5k in VA on vacation.

Since this is below the reporting threshold, I don’t need to claim anything for VA, right?
Yes.
Then for PA I would have $200k in income, right?
Yes. Even if you had to pay tax in VA, you would still have $200k in income in PA (but you probably would be entitled to a tax credit for the VA taxes paid).
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
User avatar
RickBoglehead
Posts: 7055
Joined: Wed Feb 14, 2018 9:10 am
Location: In a house

Re: Multi-state tax (am I understanding this correctly?)

Post by RickBoglehead »

Big difference between establishing temporary residence in a state and taking a vacation there, even if you're working.

Also there can be discussion as to whether you've earned money while in a state. If you're doing work for your employer in another state, and they have no facilities in the state you're in temporarily, then you didn't really earn income while in another state.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
MarkNYC
Posts: 2111
Joined: Mon May 05, 2008 7:58 pm

Re: Multi-state tax (am I understanding this correctly?)

Post by MarkNYC »

Train2bogle wrote: Thu Jul 22, 2021 10:59 am Thanks for the responses. This seems to point me in a certain direction, but doesn’t give me 100% confidence.

Let’s say I earn $195k in PA and $5k in VA on vacation.

Since this is below the reporting threshold, I don’t need to claim anything for VA, right?
No, that is not correct. Your VA adjusted gross income starts with federal adjusted gross income and then has certain adjustments. So your VA adjusted gross income will be above the filing threshold, and since some of your income was earned in VA you will be required to file a VA nonresident tax return. (assuming the income is not wages subject to a state reciprocity filing exemption)

Take a look at VA nonresident income tax return Form 763, pages 1 and 2 to see how this works.

Edit: Depending on how your income is reported, it's possible none of it may be reported as VA income, but if you earned $5K from services performed in VA that would meet the definition of "VA source income" which requires you to file a VA nonresident return if your VA adjusted gross income exceeds the filing threshold.
Last edited by MarkNYC on Thu Jul 22, 2021 2:25 pm, edited 1 time in total.
Jack FFR1846
Posts: 13811
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Multi-state tax (am I understanding this correctly?)

Post by Jack FFR1846 »

I find it quite difficult to believe you owe a dime to VA in tax.

I worked decades on the road for my company. Company and my office were in NH (no income tax). But my territory was the southeast and all of Canada. But my home was in Massachusetts. Would I have to file tax returns in Florida, Georgia, Alabama, Mississippi, Tennessee, South Carolina, North Carolina, Pennsylvania, Virginia, West Virginia, Maryland and Canada? These are the places my work took me. My return was one state. Massachusetts.

I also worked during 2 week periods while remaining in state when adopting each of my sons. No tax returns were filed for those 2 states either.
Bogle: Smart Beta is stupid
HootingSloth
Posts: 597
Joined: Mon Jan 28, 2019 3:38 pm

Re: Multi-state tax (am I understanding this correctly?)

Post by HootingSloth »

Just to square the circle a bit, if you are a W-2 employee, then it appears the reciprocity agreement cited by humblecoder would apply. In that case, you would have no Virginia source income, so it would appear that you fall within the caveat MarkNYC added in his edit and so would not have to file. Regardless of what you do in VA, you report all of the income in PA. If you did have to file and pay taxes in VA for whatever reason, then it would be annoying but would be very unlikely to lead to higher aggregate tax liability, because you should get a credit in PA.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
Topic Author
Train2bogle
Posts: 16
Joined: Sat Aug 06, 2016 8:57 pm

Re: Multi-state tax (am I understanding this correctly?)

Post by Train2bogle »

Sloth, your synopsis seems logical to me.

Thank you everyone for taking the time to give your thoughts.

Fwiw, I spoke to a friend in the same exact line of work as me. His accountant says we only file PA, but did not explain his reasoning/interpretation.
Post Reply