2

I began 2020 working abroad, but then began working (very) remotely from the US due to the pandemic. It was not until several months later that it became clear that I would not return abroad for the rest of the year. At that point my employer approved me to work abroad indefinitely, and switched me to being paid from a US subsidiary. They also backdated my salary to the start of when I originally returned to the US earlier in the year. They then paid my federal and state taxes for that entire time period.

The issue is that I moved from state A to state B about halfway through that time period, before they switched my payroll. So now I have a W2 from my employer showing that my salary for the whole year was taxed in the state B, and all state taxes were paid to state B. I now need to file part-year resident state returns for both states and I am wondering the correct way to compute my taxable income for the two states.

For example, suppose I got $100000 for the entire time period, but I lived in state A for 48% of the time and state B for 52% of the time. Can I report $48000 as taxable income for state A, and $52000 as taxable income for state B, even though this would conflict with the W2?

Or am I supposed to not consider any of the income to be taxable in state A? I have income in state A from other sources that will already be included on that return.

3

The w-2 reflects what your employer withheld and for whom. If the employer wasn't told that you changed states then one of the states has been sent too much money, and the other not enough. This is something everybody who moves from one state to another faces during their transition year. There will not a be a conflict with the W-2 because the w-2 represents what was withheld, not what should have been withheld.

When you file both states will want a copy of your Federal tax forms and the state tax form for the other state. They do this so that they can see that all the income has been accounted for.

Between the two states all your income will be allocated. The key date will be when you established residency in the new state. Everything before that is assigned to the old state, and everything after that date will be assigned to the new state. There could be some items when the percentage of year is used, but for others the date you worked or were paid will determine if that money is assigned to a particular state.

4
  • "There will not a be a conflict with the W-2 because the w-2 represents what was withheld, not what should have been withheld." But the W-2 does list taxable wages for each state. If he worked in state A but the W-2 doesn't list wages for state A, doesn't that need to be corrected?
    – user102008
    Mar 7 at 22:51
  • "The key date will be when you established residency in the new state. Everything before that is assigned to the old state, and everything after that date will be assigned to the new state." Residence is not the only determining factor. The source of income (which for wages is the location where the work was performed) also matters. If for a particular day he worked in one state but was considered tax resident in another, then the income for that day is taxed by both states, and he will have to claim a credit in one of them.
    – user102008
    Mar 7 at 22:53
  • The w-2 reflects what you submitted on your federal and state W-4, and how the company withheld funds during the tax year. If you moved on 1 April but didn't tell the payroll system that you have a new state w-4 until October, then six months of income tax withholding was sent to the wrong state, The W-2 will show what was withheld. Mar 8 at 13:08
  • We don't know the states. In some cases it depends on where you live, in other cases it is where you work. In other cases both want to tax that income. But in no case would income tax always be based on the number of days you lived in each state. Each item will have to be evaluated. Mar 8 at 13:09

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.