Maryland Part-Year Return

Question

My DC tax return was "re-routed" to MD this year shortly after I received a notice stating that I owed over 5K in taxes.

I contacted the Maryland Comptroller's Office who advised that according to their records, I had filed for federal taxes in 2009 claiming I lived in Maryland but did not file for state taxes in MD. This situation resulted in me owing over 2K in taxes, over 2K in interest, and around $400 in fees.

Going back over my records, I was able to recall the following:

• I lived in Virginia and worked in DC from Jan. 2009 to Aug. 2009.

• I lived in Maryland and worked in DC from Aug. 2009 to Dec. 2009.

• I lived in Maryland and worked in DC from Jan. 2009 to Aug. 2010.

After Aug. 2010, I moved back to VA but apparently the only issue up for debate here and responsible for the astronomical bill, is my short 2009 stint in MD, from Aug. 2009 to Dec. 2009. I say this because when discussing the matter with the Comptroller, they only mentioned what I owed for 2009. So I am assuming that all is well with my 2010 filings.

I seem to recall this situation however and was hoping someone might be able to confirm or call me crazy. I seem to remember something about not having to pay Maryland state taxes since I not only lived in the state for less than 6 months but also did not work in the state.

I couldn't find anything online regarding this so I'm assuming it is rubbish and I should have filed for VA (which I did) and part-year for MD, which I guess I didn't.

In any event, I was told that if I did not file, all I need to do is complete their 502 Maryland Resident Income Tax Return form, submit it to their Nexus department and after 6 to 8 weeks they'll hopefully determine that I owe nothing after applying my withholdings and waive what I owe in interest as well.

I assume I'd still be on the hook for the late fee but hearing I owe 5K and simply need to send in a form in order to basically owe nothing sounds too good to be true. Thoughts?

Also, why am I just now hearing from MD? I've always updated my address with the post office and receive redirected mail quite often. It's been around 6 years and I'm just now hearing about a bill that has racked up ridiculous late and interest fees? Should they have a record of notices they sent out or are they required to?

Answer 1

Based on these dates in your question:

Going back over my records, I was able to recall the following:

• I lived in Virginia and worked in DC from Jan. 2009 to Aug. 2009.
• I lived in Maryland and worked in DC from Aug. 2009 to Dec. 2009.
• I lived in Maryland and worked in DC from Jan. 2009 to Aug. 2010.

• You should have filed a part year in 2009: Virginia (Jan to Aug)/Maryland (Aug to Dec)
• In 2010 you should have filed a part year: Maryland(Jan to Aug)/? to cover the period Aug to December.

Maryland realized recently that on the 2009 Federal 1040 Form you stated that on December 31 2009 you liven in Maryland. They are wondering where the state tax form is.

DC, MD and VA due to reciprocity collect income tax based on where you live not where you work. So when you moved in August 2009 and again in August 2010 you needed to file new state versions of the W4.

The fact you did or didn't submit to your employer a correct state W-4 is not directly related, because you would owe the tax regardless. The W-4 just makes sure that something close to the correct amounts are withheld and sent to the appropriate state capital.

I seem to remember something about not having to pay Maryland state taxes since I not only lived in the state for less than 6 months but also did not work in the state.

The reciprocity between DC, MD and VA says that Maryland gets the money because that is where you lived. The last time I had to do a part year the law was that they would forgive a half a month. In other words if you move in late December or early January you could ignore that small time period and avoid having to file in two states.

In some cases people argue that some short term moves were never meant to be permanent. You might be able to claim that except the fact that your 2009 federal tax form you most likely claimed you lived in Maryland.

The next issue is time and money. If Maryland says you owe them money for that time period, and if they still have the ability to force you to pay it; This is where the issue of correct state W-4 comes in.

If the money during the period you lived in Maryland was sent to Virginia, you should have had that money refunded by Richmond in the spring of 2010. But if there was no W-4 filed with your employer that would mean that Maryland didn't get any money for 2009. If you didn't tell Richmond you moved in 2009 they may not have refunded everything because they thought you lived there all year.

Because of the time that has passed it may be too late to fix your Virginia filing, so they may not refund you excess payment to them. Maryland is interested in calculating how much you should have paid them in 2009. They are only looking at what you told the feds you made, and they may be assuming that you lived there the whole year. But until you file correctly that have no ability to calculate what you really owe.

You need professional advice. You need to know what they can and can't collect. You also need to know what you can and can't get back from Richmond. And since it also may impact your filings for 2010 you will want to get that resolved at the same time.