State Income tax assessment - money grab.

[ja19584]

I lived in Maryland for Tax year 2022 and left the state at the end of August. Since I was there over 183 days, I filed a Resident income tax return. I previously lived and filed there 2017-2021.

Ok, I reported my FULL income for the entire tax year. I am retired, do not have earned income, only retirement income from Soc Security and two small pensions, and some interest.

They sent me a bill for additional taxes, claiming that I was not entitled to the full deduction for the year in question. They reduced my $3200 standard deduction to $928! They similarly reduced my exemptions for my children. They mailed me an Income Tax Assessment which of course raised the bill. 

This doesn't seem right to me. I reported my full income for the entire year, and they are more than happy to tax that, but are only giving me these partial deductions. 

I did call them, and their explanation did not make any sense. They told me I should have filed a partial return in the state I moved to. I want to file a complaint about it. I don't have extra money to give them This just seems like a money grab.  

[DMarkM1]

You are correct MD only changed your deductions they did not change the income taxed.  You will need to do that as suggested by the MD revenue agent you contacted.  You will need to amend your 2022 MD return; the amended return will need to be printed/mailed in at this point (see steps below).  In the "General/Residency" section you should indicate you were a part-year resident in MD and answer the residency questions as applicable.  Then you will need to edit the "Income/Adjustments" section.  There you need to allocate your income sources so that only the income you received while in MD is allocated to MD.  So assuming your pay sources were monthly and you left in August you would allocate 8/12 months (.667 X income) to MD.  

Here is a link with more information on amending a state return, if needed for a desktop product. 

1. Sign in to TurboTax.
2. On the home screen, scroll down to Your tax returns & documents and select the year you want to amend.
3. Select Amend (change) return, then Amend using TurboTax Online.
4. On the screen select The IRS or state sent me a notice (this will allow you to amend only your state return without making changes to your federal) and Continue.
5. On the next screen, select Something Else and Continue.
6. On the screen select 2022 state.
7. Continue until the Let's Amend your State Taxes screen. Select Amend next to your state return, and continue through the screens to make your amendments.

[Opus 17]

When you move in the middle of the year and change your permanent residence, you are a part-year resident of each state.  You are generally not a full-year resident of the state even if you lived there more than 183 days.  The 183 day rule applies to temporary residency--if you are a permanent resident of state A, but you live in state B more than half the year, you may be considered a resident of state B as well.  This is different from moving during the year and changing your permanent residence. 

You should have filed a part-year resident tax return for Maryland and a part-year resident return for the state you moved into.  Your MD part-year return would only report income you received while you were a permanent resident of MD (including wages, retirement payments that were taken while you were a MD resident, investment gains and dividends credited to your account in those months, and so on.)  When you do the part-year resident return in Turbotax, you have to manually allocate your income, so review your income sources, statements and payment dates so you can do this accurately.

Unfortunately it is quite common that a state or the IRS will disallow deductions (such as adjusting your personal exemption for your part-year status) but not adjust your income.  You have the burden of proof.  So instead of paying the assessment, you should prepare an amended 2022 tax return as a part-year resident, taking into account any taxes you paid or refund you received originally.  You will likely owe less or maybe be due an additional refund.   Send the amended return along with a letter of explanation (and a check if required) to the office that sent the assessment, not the usual address for amended returns.

And if you moved into a state with income tax, remember you also need to file a part-year return for that state, starting on the date your permanent residency in that state began.