2 different states Tax filling (one as resident an...
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Mohamed Bassyouni
Level 2

2 different states Tax filling (one as resident and the other one is NR)

I had 2 jobs in 2020: One from Employer in MD and I have W-2 including MD state tax withheld - The second Employer is in MA and I have W-2 including MA state tax withheld.

 

Please note that I spent the whole year resident in MD, so for the second job I was 100% remote. When I added the information for my federal taxes in TurboTax, I downloaded the 2 states and started the information there.

 

In MD, they consider the whole gross income as from the federal taxes. for an income of $430K, the calculation is MD state tax of $36,000 which is approximately 8.5%. This is very high for a state tax. In my filling for MA, I mentioned that no working days were there and added income abortion that lead to a full refund of the withheld amount.

 

My main question:

Is my filing to MA correct? I should not pay state tax there as I was NR?

Why MD state tax calculation comes very high at 8.5%? Shall I add MA withheld as a credit?

 

 

 

5 Replies
Mike9241
Level 6

2 different states Tax filling (one as resident and the other one is NR)

typically your resident taxes all your income including wages 

 

Is my filing to MA correct? I should not pay state tax there as I was NR?

here's what MA says

In General. Under M.G.L. c. 62, § 5A(a), income of a non-resident derived from a trade or business, including any employment, carried on in the Commonwealth is sourced to Massachusetts. Pursuant to this rule, all compensation received for services performed by a non-resident who, immediately prior to the Massachusetts COVID-19 state of emergency (3/10/2020) was an employee engaged in performing such services in Massachusetts, and who is performing services from a location outside Massachusetts due to a Pandemic-Related Circumstance will continue to be treated as Massachusetts source income subject to personal income tax under M.G.L. c. 62, § 5A and personal income tax withholding pursuant to M.G.L. c. 62B, § 2.

 

Why MD state tax calculation comes very high at 8.5%? (not if you are also subject to a local income tax)

For tax year 2020, Maryland's personal tax rates begin at 2% on the first $1000 of taxable income and increase up to a maximum of 5.75% on incomes exceeding $250,000 (or $300,000 for taxpayers filing jointly, heads of household, or qualifying widow(ers). in addition, 

Maryland's 23 counties and Baltimore City levy a local income tax which we collect on the state income tax return as a convenience for local governments. The local income tax is calculated as a percentage of your taxable income. Local officials set the rates, which range between 2.25% and 3.20% for the current tax year.

You should report your local income tax amount on line 28 of Form 502.

 

Shall I add MA withheld as a credit? NO. the only time you can take a credit is if you actually have a tax liability in MA. then the credit is based on your actual tax liability, not the withholding amount.   if you are subject to MA tax that return must be prepared first so you get the proper credit on MD. 

Mohamed Bassyouni
Level 2

2 different states Tax filling (one as resident and the other one is NR)

Thanks so much for your explanation - This means that my second employer has underestimated the state  + local MA tax withheld. The main difference is coming from the 3.2% the local county tax in MD.

 

My other question: If I'm 100% remote despite that my employer headquarter is at MA. I can only file state tax to my resident state. How the withheld can be redirected to MD? 

AmyC
Employee Tax Expert

2 different states Tax filling (one as resident and the other one is NR)

The normal MA law states that you file a tax return in MA if you have MA source income. The COVID ruling mentioned above states that even if your were not in MA, you had MA source income, and are still subject to MA taxes.

 

As @Mike9241 said, only if you have a MA liability, can you file for a credit. IF your income is MA source, then you will have MA tax liability used to create a credit for your resident state.

 

Here's the key to determine which is right: Is your employer based in MA only? If your employer also has a MD location, then you can file MA and get a full refund and they can withhold the MD instead.

 

Once your determine if your income is MA based, then you can file MA correctly. Once MA is determined, you can file resident state based on that outcome.

 

If your employer is MA based, file MA with income and tax liability then file resident state with a credit for taxes paid to MA.

You will need to prepare the states in a special order. You may need to delete both states and begin again.

 

  1. First, prepare your non-resident  return. This creates your tax liability for the non-resident state. How do I file a nonresident state return?
  2. THEN prepare your resident state return and it will generate a credit for your income already being taxed in the non-resident state.
  3. The credit will be the lower of the state tax liabilities on the same income. You may owe your resident state.

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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Mohamed Bassyouni
Level 2

2 different states Tax filling (one as resident and the other one is NR)

Thanks so much Amy for your guidance - Unfortunately I was not able to complete the 2 states filling on my own. I would like to request a full review to my 2020 Tax file by an expert and to get a step by step guidance by an expert. Is this something you can help me with? I'm open for any additional charges. Thx, Mohamed 

CarissaM
Intuit Alumni

2 different states Tax filling (one as resident and the other one is NR)

If you need to add additional services, please click here to contact a tax specialist to assist you @Mohamed Bassyouni .

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