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Anyone have any useful information or experience regarding Tax implications of having a different Residency state and Work state?

Essentially, I moved from Illinois to Indiana. I work for a global company, and had an office in Illinois. Now that I moved, I work for the same company from my home in Indiana. For some convenience reasons, my manager still has me listed with the company as having an office still in Illinois.

So, when I changed my home address with my company, they indicated that I would have a Residency State of Indiana and a Work State of Illinois. I don't know what those terms ("Residency State" & "Work State") mean as far as taxes are concerned.

One more bit of information, if it is to my advantage to change my Work State to Indiana, I believe I could probably do that fairly easily, but my manager would have to agree and submit the change.

Recommendations, Advice, and other useful Info?

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It depends. Many states have interstate tax agreements, where you only pay tax to the state in which you live regardless of where the money is earned. Such as the DC/Maryland/Virginia area. Look at your state's tax forms and supplemental forms. There should be some line that says something to the effect of "credit for income earned in other states" OR "credit for income earned while living in another state"

lippyroa said: Anyone have any useful information or experience regarding Tax implications of having a different Residency state and Work state?

Essentially, I moved from Illinois to Indiana. I work for a global company, and had an office in Illinois. Now that I moved, I work for the same company from my home in Indiana. For some convenience reasons, my manager still has me listed with the company as having an office still in Illinois.

So, when I changed my home address with my company, they indicated that I would have a Residency State of Indiana and a Work State of Illinois. I don't know what those terms ("Residency State" & "Work State") mean as far as taxes are concerned.

One more bit of information, if it is to my advantage to change my Work State to Indiana, I believe I could probably do that fairly easily, but my manager would have to agree and submit the change.

Recommendations, Advice, and other useful Info?


It depends. For instance, if you live in Nj and work in NY, you only pay tax to NJ. However if you live in Ny and work in Nj, you pay tax to BOTH. I know it is harsh.

Illinois rescinded its reciprocal tax agreement with Indiana in December, 1997. but retains its reciprocal agreements with Iowa, Kentucky, Michigan, and Wisconsin. Here's a list of state reciprocal income tax agreements.

If your work state is IL, then your employer has to report the earnings in IL, so if you don't file there, the IL Dept of Revenue will come looking for you eventually.

Get your work state changed to Indiana, otherwise you'll have to file in two states instead of one; Non-resident in IL and resident in IN. You'll also have to claim a credit on your IN return for taxes paid to IL.

If you moved prior to the first of the year, see if you can get your employer to make a correction in their state quarterly reporting so that all your income appears in IN.

If you moved during this year, you'll have to file on a part-year resident basis in both states. Try to get the work state changed to reflect the same date you moved. This would make filing easier, but again, would require work by your employer's payroll department.

Currently, the state income tax rate is slightly higher and deductions are worth less in IN than in IL, so you'll end up paying more income tax in your new state, but there's no way around that.

IL has a huge budget deficit and may increase the income tax rate. If they do that, you definitely don't want to be paying taxes here, because you won't get credit for the excess on your IN return.

turkey79 said: lippyroa said: Anyone have any useful information or experience regarding Tax implications of having a different Residency state and Work state?

Essentially, I moved from Illinois to Indiana. I work for a global company, and had an office in Illinois. Now that I moved, I work for the same company from my home in Indiana. For some convenience reasons, my manager still has me listed with the company as having an office still in Illinois.

So, when I changed my home address with my company, they indicated that I would have a Residency State of Indiana and a Work State of Illinois. I don't know what those terms ("Residency State" & "Work State") mean as far as taxes are concerned.

One more bit of information, if it is to my advantage to change my Work State to Indiana, I believe I could probably do that fairly easily, but my manager would have to agree and submit the change.

Recommendations, Advice, and other useful Info?


It depends. For instance, if you live in Nj and work in NY, you only pay tax to NJ. However if you live in Ny and work in Nj, you pay tax to BOTH. I know it is harsh.


Could you substantiate that statement?

I believe if you live in nj and work in ny you pay tax to both ny and nj. of course, you ny gives you credit for the (slightly lower) tax you pay to nj.

Anakin

turkey79 said: lippyroa said:

It depends. For instance, if you live in Nj and work in NY, you only pay tax to NJ. However if you live in Ny and work in Nj, you pay tax to BOTH. I know it is harsh.


Could you substantiate that statement?

I believe if you live in nj and work in ny you pay tax to both ny and nj. of course, you ny gives you credit for the (slightly lower) tax you pay to nj.

Anakin


Anakin, For NJ resident working in NY: Just like you said your NY tax will be credit to NJ, hence you get couple dollars back at tax time as during the year you pay to NY and NY rate is a bit higher than NJ.

For NY resident working in NJ: NJ tax you paid during the year will not be credit towards NY tax, so you pay both NY and NJ tax.

Am I clear?

turkey79 said:
Anakin, For NJ resident working in NY: Just like you said your NY tax will be credit to NJ, hence you get couple dollars back at tax time as during the year you pay to NY and NY rate is a bit higher than NJ.

For NY resident working in NJ: NJ tax you paid during the year will not be credit towards NY tax, so you pay both NY and NJ tax.

Am I clear?

Absolutely clear.
But unfortunately wrong.

A NY state resident can claim a credit for incomes taxes paid to NJ by attaching Form IT-112-R to your NY state income tax return.

If you haven't been claiming a credit for the taxes you paid to NJ, you can file an amended NY state income tax return going back up to three years to reclaim your overpaid taxes.

elturn said: turkey79 said:
Anakin, For NJ resident working in NY: Just like you said your NY tax will be credit to NJ, hence you get couple dollars back at tax time as during the year you pay to NY and NY rate is a bit higher than NJ.

For NY resident working in NJ: NJ tax you paid during the year will not be credit towards NY tax, so you pay both NY and NJ tax.

Am I clear?

Absolutely clear.
But unfortunately wrong.

A NY state resident can claim a credit for incomes taxes paid to NJ by attaching Form IT-112-R to your NY state income tax return.

If you haven't been claiming a credit for the taxes you paid to NJ, you can file an amended NY state income tax return going back up to three years to reclaim your overpaid taxes.


thanks for the info, turkey79, e1turn.

Anakin

elturn said: turkey79 said:
Anakin, For NJ resident working in NY: Just like you said your NY tax will be credit to NJ, hence you get couple dollars back at tax time as during the year you pay to NY and NY rate is a bit higher than NJ.

For NY resident working in NJ: NJ tax you paid during the year will not be credit towards NY tax, so you pay both NY and NJ tax.

Am I clear?

Absolutely clear.
But unfortunately wrong.

A NY state resident can claim a credit for incomes taxes paid to NJ by attaching Form IT-112-R to your NY state income tax return.

If you haven't been claiming a credit for the taxes you paid to NJ, you can file an amended NY state income tax return going back up to three years to reclaim your overpaid taxes.


THANKS!!! How come the tax consultant that I paid ton of cash didnt know this..I told him the same idea (except pointing out the link) he told me he does this (NY resident-NJ working)for at least 100 people per year and NY does not recognize NJ as tax credit. I will call him today, thanks again for sharing your experience, I really appreciate it...

I have the same situation with Texas and Virginia, due to a consulting contract. Texas doesn't have an income tax (its my state of residency) but VA surely does. At least it will only end up being a partial year form for this year, my company changed its reporting policy during the first quarter. Next year I will most likely be in a diffrent state and paying THEIR tax.

If TX's property and school taxes weren't so high to compensate for no income tax it wouldn't be so painful. My headhunting company is in Texas, my primary client is in Texas, but the end-client location is in VA. At least they didn't pull this back when I worked in 5-6 states a year... THAT would have been painful and paperwork intensive. They actually had to register with a bunch of states as employers to do it, so there was no way they made that change voluntarily.

I heard in the office that California was the main culprit in forcing it, and they made the policy change universal.


When I lived in PA and worked in DE I used to figure all of this out by hand (they didn't have a reciporical agreement). Now, if you use Tax software like Turbo Tax, it will figure it out nicely for you. I'd get a Tax program and run last year's numbers both ways (with either as your state of residence) and see what happens.

curlychiquita said: ....I'd get a Tax program and run last year's numbers both ways (with either as your state of residence) and see what happens.That could be hard to test without spending money because with TurboTax and I assume TaxCut and TaxAct, you get one state included and you have to pay extra for additional states.

I don't think the overall state tax liability is going to change for the poster regardless of whether or not he has IL or IN as his work state since currently his state of residence has a higher rate than his work state (3.4% vs 3%). If the situation were switched so that he lived in IL and worked in IN, then he would indeed pay more.

The difference is in the hassle and possibly in the cost of filing in multiple states.

Too, the taxpayer really should report the actual state in which he worked and should not attempt to rely on a clerical omission (reporting the wrong state) to get a favorable rate. If he ever got audited he might have a difficult time explaining why he had IL as a work state when he did not work there.

If that sort of thing were allowed and if it provided some financial benefit, then "work at home" folks would choose states without income taxes as their "work states."

Try using Turbo Tax with the multi-states. You get can download one state free. You're SUPPOSE to purchase the aditional state(s) you need--each state you in which you have income -- earned, real estate , whatever. The software makes the filing painless if not the payment. It calculates the taxes in each state and apportions it out following the rules. I screwed it up for years. I thought I was below the minimum. Even though my earnings were below the minimum to report in a state that I wasn't a residence, I found out your suppose to file based on your total annual earnings. Then each state has rules over how much it gets and gives credit. I gave up on finding an accountant who understood the laws in the particular states I needed.

Doing two states might be possible without software but with more than that its impossible and I guess there are even multiple ways to calculate who gets what based on the order calculating everything and which states give credit for what taxes paid to what other states.


Oh yeah don't for get that city income tax. Though alot of states give credit for the other state income tax they don't for the city income tax at least they don't where I have to pay it.

halfasleep said: ...Doing two states might be possible without software but with more than that its impossible and I guess there are even multiple ways to calculate who gets what based on the order calculating everything and which states give credit for what taxes paid to what other states....As long as you calculate the home state taxes last, it doesn't matter in what order you calculate taxes for additional work states.

When you file as a non-resident, you do not get credit for taxes paid to other states. You only get credit in the state in which you file as a resident.

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I still contend that selection of the work state is not a choice to be based on a clerical omission or personal preference and that even if it were, there would be no tax benefit to choosing one work state over another.

There is only downside risk from trying to manipulate the work state. There is nothing positive to be gained.

Your home state is going to see that all the taxes they think you owe have been paid by you and they won't give you credit for taxes paid to another state in excess of what your home state would assess.



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