College Student Non-Resident Wages

[carriskoul]

Hello everybody - I have an interesting situation for my daughter's state tax filing(s).

She is a full-time student at ISU and was offered an internship during the summer of 2023 (started mid-May through 1st week in Aug.) with the company headquartered in Omaha, NE but with her workplace in Counsil Bluffs, IA.

She was temporarily housed a few miles away from her workplace over the state line in Omaha, NE at the University of Nebraska.

She did not list her full-time residency as IL to their payroll department for IL withholdings.

The company listed her temporary mailing address (NE) where she was being housed at on her W2's (Box e).

Her wages (Box 16) were taxed (Box 17) by the state of IA and a very small percentage by the State of Nebraska.

I entered all her info into TT for IL's state tax filing from her W2's as "other state income tax (IA, NE) paid" (even though IL and IA have a state tax reciprocal agreement). 

Now, because state income taxes were withheld for both of those two states, I think I need to file for each state respectively as a non-resident filer (even though the company put her up temporarily at a NE address for the case of the NE state filing).

Is this correct or do I need to go through the trouble of having a correction submitted in the case of IA to get the state taxes refunded for IL residents (and not sure respectively for NE because they do not have a reciprocal agreement with IL & IA)?

TT deducted both the IA and NE taxes from her IL taxes due and I did not get any error check, so I assume this is ok.

Thanks.

[AnnetteB6]

It sounds like you are on the right track.  In order to get any of the state withholdings back from NE and IA, you would need to file a non-resident return for those states.  Be sure to complete these returns before completing the IL resident tax return so that the credit for taxes paid to another state will be the correct amounts.  

It is not necessary to do anything other than file a non-resident return for IA even though there is a reciprocal agreement for IA and IL.  If this job situation was more long-term, then it would make sense to take advantage of the reciprocal agreement and have IL taxes withheld from the IA wages so that two state returns would not be required.

[carriskoul]

Hello again - Thank you for the feedback and much appreciated.

I did do some additional research on this and purchased TT for states IA & NE.

So her IL base income (her Fed AGI) gets taxed as expected.

• She files an IA NR return and gets that refund, which in the end offsets the IL tax (in her pocketbook that is) she would owe, thus no tax credit applied on Schedule CR for that - correct?
• She also files an NE NR return and gets that refund however, TT for the IL filing requires me to enter the NE income tax withheld and TT populates it on Schedule CR for an IL tax credit.

I tried deleting the NE W-2 withholdings thinking that it would add that tax toward her IL liability since she will be getting refunded by NE similarly to the IA return.  But I assume TT did what it did because she will get the NE state tax refund in 2024, of which it will be 2024 income that she will report for next year's IL state filing - is this correct?

One additional topic that I need some clarity on when going through the TT interview for figuring out the IL and non-IL portions of her AGI (although it seems that it doesn't change the result of her tax liability when I tweak the portions).

Column A in Schedule CR is pretty straightforward.  Column B for the non-IL portion is a little unclear.

• Her W-2s show the same income reported to both NE and IA.  She is a non-resident and I count this as non-IL income because the payer is from NE (i.e. Nebraska sourced income).
• She also has an NEC from a payer in IA (no tax withholdings).  Again she is a non-resident performing her service in IA but her residency/business is based in IL being a full-time student in IA.  I assume this business income is treated as business income for the IL Portion because of the reciprocal agreement - is this correct?

Anyway, that's what I have concluded, and hope it all makes sense.

[AmyC]

No. IL is resident state and all of it is IL income. IL gives a credit for the tax liability (not tax withheld) of the nonresident states, even if it isn't paid yet. The tax liability remains constant.

The NE and IA tax liability should be entered, not the withheld amount. If the liability is zero, do not enter the state at all for a credit.

[carriskoul]

Hi AmyC - got it and thanks for the clarification.  I mixed up the terms between withholdings and tax liability (i.e. paid to other state).

Not sure why TT did not give me an error the first time through but looking into the Forms View there was a yellow highlighted box where I entered "0" for NE tax liability and that seemed to correct things.

So, I take it no need to repeat this for IA because of the reciprocal agreement on W2 or NEC wages.

I'm still confused then why TT is adding IL Sch. CR because my daughter is getting refunds from both states after filling those respective forms.

The IL CR form has some entries populated up through page 2 and ends there with no impact to the end result for IL tax liability.

Why does it need to figure out Step 2 column B income portions if there was no tax liability from NE anyway?

I do know that it populates on IL CR, Line 1, Column B for example $12,602, the entry from the NE Sch. III Line 1 (note this income is entered by me there per the State copy of the W2 and box 16 has NE).

Nebraska Schedule III — Computation of Nebraska Tax FORM 1040N Schedule III 2023

Nebraska Schedule III — Computation of Nebraska Tax for PARTIAL-YEAR RESIDENTS AND NONRESIDENTS ONLY
• You must complete lines 1 through 14, Form 1040N. If you have state, local, or federal bond interest or other adjustments, complete Parts A and B of Nebraska Schedule I. Use Schedule III to calculate your Nebraska tax liability.
• You do not have to provide a copy of other state returns when filing Schedule III.

__________________________________________________________________________
1 Income derived from Nebraska sources. Include income from wages, interest, dividends, business, farming,
Nebraska unemployment payments, severance payments connected to Nebraska employment, partnerships,
S corporations, limited liability companies, estates and trusts, gain or loss, rents, royalties, and financial
institution tax credit amount. If there is no Nebraska income or loss, enter -0-.
a List type: Company X                                                                                                                    b Amount: $12,609
   List type:                                                                                                                                              Amount:
Total income derived from Nebraska sources. Enter total of lines 1b................................................................................. 1       $12,609

Sorry for the cut and paste as I had no way of inserting the form image.

I do have a separate question regarding the CR form if needed but will ask only pending if after a response to keep it less confusing.

Thanks, again.

[carriskoul]

OR, is 1040N Schedule III, Line 1b not to be considered income derived from NE sourced income just because her W2's (i.e. her summer internship job with earnings from Conagra - the Payer) show NE (in Box 15 - sorry typoed Box 16 previously) as the state with withholdings?

[AmyC · Accepted solution]

The IL CR is to give a credit for the tax liability in NE. Even though she is getting a refund, she may have had a tax liability. For example, earned $15,000, paid in $400 and getting a refund of $300 then there was a tax liability of $100 to be reported. If she is getting back every penny paid in, there was no liability and no need for the form.

NE  instructions show the filing requirements on page 6. The job was Iowa with a false sense of NE residency. I tend to err on the side of caution since clearing things up 3 or 4 years later is harder to me. Personally, I would file them all and if there is no tax liability, you can delete the sch CR from IL.

[carriskoul]

Thank you once again - no tax liability at all from both IA and NE.  All of it will be refunded and yes, we are filing to all three states (IL, IA, NE).

We have an inquiry into the HR department of where she worked (IA facility) on why the NE withholdings, just for our understanding in case of a next time.

At the start of all this, I was tying the Employer's address in Box C (which is an Omaha, NE address) of the W-2 as the income derived from Nebraska sources, which crossed me up on all of this since she physically worked in the IA plant.

I appreciate your feedback!