Allocate NY income by percentage still results in 100% for NY

[agus7in]

In my W2 I have state income in CA and the state income for NY is actually the total (box 1).

I'm filing on turbotax and allocating income to NY.

I go to allocate by %, aiming to put 28% for NY since the income for CA is 72% of the total income for the year.

However, after I write 28, turbotax still sets NY state income to the total for the year.

What's going on?

THANKS

[KeshaH]

To best understand the issue, I'd like to view a diagnostic copy of your return. With it, we can take a look at your return so we can see exactly what you see and help come to a resolution. The return will be scrubbed and will not include any of your personal details.

Once you're logged in to your account,

- on the left hand panel, click on Tax Tools and then choose Tools

- on the pop up window, select Share my file with Agent

- you'll see a message saying you'll give us a copy of your tax return. Your personal information will be changed so we can't see any private information.

- click okay and you'll get another message with a token

Reply to this message with your token and we'll take a look to see what we can find. Let us know what other states, if any, are included in your return.

[agus7in]

This is my token 1273163. 

I deleted and restarted my NY state return and got the same problem. Other state is CA.

[TomD8]

@agus7in 

It's a quirk of New York tax law that the Box 1 wages on the W-2 must always match the New York wages in Box 16.  It's up to the taxpayer to re-allocate the wages as appropriate on their New York tax return.

You can read NY's rules for Form W-2 on page 55 of this New York tax publication:

https://www.tax.ny.gov/pdf/publications/withholding/nys50_1223.pdf

[KeshaH]

Your NY income allocation percentage is being shown at 28%.

For part year residents and nonresidents, NY calculates tax liability as if you were a NY resident for the full year. The income shown as "NY taxable income" is your full income. When you get to the tax summary screen in TurboTax, that's what you are seeing. 

After calculating the tax liability, NY then applies the income allocation percentage to prorate the tax based on how much income you earned in the state compared to overall. In your case, your tax liability is prorated by the 28%.

This is different than how some other states, such as California, calculate tax liability only on the income that you earned within that state.

[agus7in]

I understand that NY considers the total income to set the tax bracket, but I don't understand what turbotax is asking, how the form is filled out and how to check the tax calculated is OK.

1. It is confusing that turbotax asks me for 28% and then nothing happens - shouldn't this be called out somewhere on the screen?

2. What is turbotax doing with the 28%? does it go in any form? which form and line?

3. Where does the dollar value for 28% go? which form and line?

4. Otherwise, how is the NY portion of the income calculated? what form/line?

Thanks!

[KeshaH]

The 28% is being applied to your NY tax liability.

When you look at the income on the IT-203 lines 1-31, you'll see a column for Federal amounts and a column for the amount allocated to NY. Let's assume, for illustration purposes only, that you made a total of $100,000 all year. $28,000 was earned in NY, $72,000 was earned in CA.

On the IT-203, line 31 you'll see the $100,000 adjusted gross income in the federal column and the $28,000 in the state column. Then on line 36, after the state standard/itemized deductions you'll see your state taxable income - this is the federal adjusted gross income from line 31 less the state standard deduction. Let's assume your state taxable income is $92,000 after subtracting the state standard deduction of $8,000.

Next, on line 38, NY calculates the NY tax liability based on the state taxable income of $92,000. Let's assume, the tax comes out to $5,000 on line 28.

After taking into account any tax credits you may qualify for, line 44 shows your net tax liability. We'll say it's still $5,000 in our example.

Then line 45 shows the income allocation percentage - which takes the state column from line 31 and divides it by the federal column from line 31.

Line 46 then takes the net tax from line 44 and multiplies it by the income allocation percentage from line 45. This gets your prorated tax based on how much income you actually earned within the state.