Multiple States tax filing question - should I file AZ as a resident or just not file AZ taxes?

Forum|Forum|6 years ago
March 31, 2020
5 replies
39 views

Background: In 2019, I was a full time student in PA (spending 9 months in the dorm) and earned 6% of my income (w-2 rcvd with fed&state w/h). I also interned in CA (2 months rented house) and earned 90% of my income (W-2 rcvd with fed&state w/h) . In addition, I have unearned income (1099) which is 4% of the total income. My parents live in AZ and I use that as my address spent less than a month there in 2019. I have an AZ drivers license and regd to vote there. My bank a/c is in PA and AZ. I am filing taxes for the first time!

Questions: Which state am I a domicile of ? specifically, can I be a part year resident of 3 states OR is it mandatory to be a resident of one state, and part time for the other two?

Why do I ask? -

a. TurboTax online is forcing me to be a resident of one state and is basing that on where I was on Dec 31, 2019 (I was with my parents for the holidays!

b. I spent most of my time in PA, made most money in CA, have drv lic and regd to Vote in AZ.

c . If I use AZ as a full time resident, I have to pay $185 in taxes to AZ in addition to paying (about) the same to the other two states.

AmyC

Level 15

A college student supported by their parents is based at home with their parents. It sounds like an AZ return. However, AZ will give you credit for the taxes paid to the other states. Even if your parents are not supporting you, you have not established a home anywhere else, again AZ return.

Non-resident returns for PA and CA. You were only there temporarily, you did not create a home and had no intention to stay.

You may need to delete all states and begin again.

First, prepare your non-resident returns. This creates your tax liability for the non-resident state.
THEN prepare your resident state AZ return and it will generate a credit for your income already being taxed in the non-resident states.
The credit will be the lower of the state tax liabilities on the same income. You may owe your resident state if their tax rate is higher.

It isn't possible for the program to create a credit before it knows the liability. Your returns may be wrong if you do not prepare the states in this order.

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rv2Author

Level 3

Thanks for the response AmyC.

I thought I had done what you had suggested, but I went ahead and deleted all the states and redid in the order you suggested (PA + CA and then AZ).

As I started working on the AZ state, specifically on the Turbotax screen: "Tell us about additional filing information", it gives me the option to 'Confirm main form or residency'.

When Opted, it gives me 4 further options (see below):-

a) Form 140 - Resident

If I choose this option, I end up paying state taxes to AZ because AZ doesn't give me credit for taxes paid to CA 😱 (CA accounts for 95% of my earned income and state withholding!) - turbotax informs me that I can't claim credit from AZ for taxes paid to CA and a few other states.

b) Form 140NR - NonResident

Not applicable

c) Form 140PY - Part Year Resident

If I choose this option (remember, I had spent only 20 days in AZ in 2019!), I do not pay any state taxes to AZ, as my unearned income alone (which is only 4% of my AGI) is taxed under AZ as AZ source income. Is this the option (file AZ return as part year resident, while file CA/PA return as non-resident ) you suggest for me? Pls confirm.

If I should use AZ resident (Option a), then how do I work around the AZ (Form 309) limitation of not giving credit for CA taxes paid?

d) Form 140PTC - property tax credit

Not applicable

AmyC

Level 15

Mea Culpa. I forgot that AZ and CA are doing the new reverse credit. CA will give you nonresident credit for tax paid to AZ. You actually prepare the AZ and then the CA. You can file all the returns now, get your CA refund and then pay AZ their share.

I know part year would be easier for filing but a whole lot harder for proving.

Your taxes are bizarrely hard having 3 states and both types of credit for out of state, the normal reciprocal and now the reverse. I am sorry about that!

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