California based company
We lived in CA until Jun 30 then moved to SC. Despite our continued efforts to get the address changed and the taxes corrected, they never did. So for the entire year we paid CA taxes. I have entered the W2 as received from the company but have no hope at this point to get it corrected. How should I go about dealing with the discrepancy in state income and taxes?
First, were you still working for that California company after you moved to South Carolina? If you were - and if you did not move to SC at the company's request - then you likely owe tax to California for the whole year anyway.
If it turns out that you don't owe CA tax because you were working for a new company, then your first employer has already sent all the withholding to the state of California. The only way to "get it back" is to file both state tax returns. Do the California return first, then the SC one. The income tax that you pay to California will appear as a credit on your SC return. This is how most states handle double taxation.
This credit will appear on line 1 of form SC1040TC.
AS you initially state, there is only one employer. Odd that in the past I have had them take taxes based on where I live so thats what I expected. Seems like theres an issue there but I'll run with it as is.
California taxes workers who live out of state, if they work for a CA company by telecommuting.
It sounds like you need to file a CA part-year return and a SC part year return.
Do the CA return first. TurboTax will calculate the tax owed to CA, then on the SC return, this amount will be used as a credit on the SC return. This is how states normally deal with double taxation.