I live in New york State Apparently i've been being taxed in PA and NY since july after getting a raise I've asked my job to fix this, but how much trouble am i in?

[thebaron93]

I got a raise in July and apparently about a month later i started getting taxed in the state of PA as well, i never noticed this until the w2 form i saw today. how much trouble would i be in? could they go back and correct the taxes from that long ago? Would it just be that i owe some taxes in new state? its a few thousand dollars that it says i've made wages on in PA

Thank you!

[DanielV01]

The fact that you had taxes withheld in PA does not mean your income is automatically taxable there.  For instance, if the company is located in PA, but you work in a NY office of the company, you are only taxed in NY.  In a case like this, if they've mistakenly withheld PA tax, then you will file a PA nonresident tax return with $0 of income (there is a way to mark your income as nontaxable in Pennsylvania in the state return), and then your PA withholdings are refunded.

On the other hand, if the income is telecommuting (working remotely from home), then PA will consider your income as taxable there.  And if your promotion was because of a change in circumstances involving remote work, then this could be why they began to withhold PA tax.  If this is the case, however, New York (who will tax all of your income regardless) will give you a credit for tax you pay to PA for any income earned there.

And none of this has any bearing on your previous withholdings, unless your company indicates otherwise.  In the unlikely event that were to be the case, you would then file PA returns for the affected year(s), and amended NY returns to claim the credit for taxes you would then have to pay to PA.  (You also might have an argument with the state to have any penalties and interest waived also).  But, again, this is the least likely scenario.

[jc12583]

Daniel-

Elsewhere, Turbotax indicates that you don't need to file a second state tax return if you work for an out-of-state employer:  

https://ttlc.intuit.com/community/returns-and-forms/help/when-would-i-have-to-file-returns-in-more-t...

Is that advice incorrect if one is telecommuting fulltime?  Ie, living in one state, but telecommuting full time for a company based out of state?

[DanielV01]

@jc12583  It depends on the states in question.  The thread you have posted on discusses Pennsylvania and New York.  Both of these states follow the "convenience of the employer" doctrine, and insist that if you are telecommuting to a work location located within their state, your income is taxable to that state.  So if you live in Pennsylvania, for example, and are telecommuting to a New York-located business, New York states that you are considered to be working within the borders of New York, even though you never step foot inside of the state.  New York is by far and away the most aggressive state with this stance, but other states follow it as well.

But not all do.  For instance, if the business is located in California, California only will tax you if you are physically working within the state.  If you are not physically present, then your income is only taxable in the state you live (presuming you are physically working in your home state and are not working from another location).

Feel free to mention the state where the business is located as well as your state if you wish more guidance.

[jc12583]

@DanielV01 Thanks Daniel.  My specific situation is that I live fulltime in NYS, and telecommute fulltime for a company based in PA.  So the reverse of your hypothetical situation.  My employer does not withhold PA taxes, only NYS taxes. My understanding is the PA is also a "convenience rule" state, so my employer is either incorrectly not withholding PA taxes or considers me telecommuting at their convenience, and therefore exempt from PA withholding.  I need to speak with them still, but assuming the latter is the case, would I need to file a nonresident PA return?  I'm thinking no...  

[DanielV01]

@jc12583  I would suggest speaking with your company and have them verify if they are unsure.  If you are not subject to PA tax based on that, you will probably want something in writing in case PA comes asking.  However, you also will not have to file a PA return if this is the case.

However, if you find out you do need to file one, you will certainly owe PA tax.  However, your NY refund should be increased by what you owe PA, because NY will allow you a credit for taxes you pay to another state.  The only thing it should cost you in the end is whatever it costs to file the PA return in addition to the NY return if that is the case.  But you do well to verify the correct way from your employers and avoid penalties that would come if you didn't do it correctly.