Company changed my state location from PA to NC too early

[celisup78]

I took a new role within my current company at the start of 2021. I was working/living in PA up until that time. Once I accepted the new role, I was still living/working in PA until mid March 2021 since I was still doing my old job too since it was a soft transition to the new role that was to be located in NC. However my company changed my state to NC for my 1/22/2021 paystub and beyond. 

I can back calculate using paystubs to accurately determine how much tax should have been paid to PA state and local from 1/1/2021-3/13/2021 (date I moved to NC and worked in that role full time). Is that how I am suppose to file, calculate/pay PA state and local for that time frame and get a refund from NC for that range? Thanks for the help!

[PattiF]

Yes, you should allocate the income on your W-2 to reflect the time that you were living in Pennsylvania before your more to North Carolina.

Here is TurboTax Help for your situation.

[celisup78]

Thanks for the fast response. I have two W-2's, one is for PA showing the wages earned on my 1/8/2021 paystub. The second W2 is from 1/22/2021-EOY 2021 showing NC taxes only. I think I have two steps to complete.....First, when I input that second NC-only W2 into TurboTax, then I should modify/reduce the income in Box 16 (state wages, tips, etc) for NC by subtracting the income that should have went to PA?

Second, I should also click that "Add another state" button on the TurboTax W2 form to add PA, put in the wages PA "should have" got for Box 16, and input $0 for Box 17 (State Income Tax)?

[RaifH]

Yes, if the W-2 federal amounts match the state amounts reported, report the first W-2 for PA exactly as it appears. For the second NC W-2, you can adjust the box 16 amounts to correctly report what you earned in each state while you were a resident by adding PA for the period from 1/8/2021 - 3/13/2021 and subtracting that amount from the NC Box 16. Do not adjust the Box 17 amounts. 

If the federal amount is the entire amount for the year, you want to report all this on one W-2. This will make allocating the wages easier when you get to the states section of your tax return. 

[celisup78]

The federal amounts are different on the two W2's so I will input the them separately. Unless there is somewhere for me to show my numbers/math, then I assume that I don't explain my actions or my calculations unless I am audited? 

[RaifH]

Yes, that's correct. If NC asks why their taxable income was reduced, be able to provide documentation that your residence did not actually change until March 13 as well as provide documentation for how you determined the amount that was earned while you were still a PA resident. You do not need to include any of that with your return, just keep it with your records.

[celisup78]

I followed back up with my employer to see if I could get a corrected W2. Payroll tells me that my W2 is correct in that I was living in PA from 1/1-3/13/2021 and formally working in NC (although remotely in PA). My status then changes to living/working in NC after 3/13/2021 when I move to NC. From reading many websites, it appears that my income from 1/1-3/13, while taxed in NC, needs to be reported in PA too since I was a resident there during that timeframe. However, I think I properly read that PA should give me credit for the taxes I already paid in NC.  A few questions:

1. Is this thought process correct?

2. Do I use my paystub to prove my compensation during 1/1-3/13 since I dont have anything else from my employer stating it, and if so, I just input that compensation in box 1a, Gross Compensation?

3. Do I use form PA Schedule G-L to receive credit for the taxes paid to NC?

[ErnieS0]

Your employer is incorrect. 

North Carolina says "A nonresident employee is subject to N. C. withholding tax on any part of his wages paid for services performed in this State."

See Employee Requirements in Withholding Tax Frequently Asked Questions.

You should report on a Pennsylvania income tax return the amount you earned until you moved to North Carolina.

You should not have been double taxed so do not claim a credit for tax paid to NC.

Instead adjust the income on the part-year NC return to show what you actually earned in NC. Since you are reporting less income than the amount income shown on your W-2, the extra withholding will be added back into your NC refund.

You don't have to send your pay stubs with your NC return. Keep them in case you are audited.

[celisup78]

Unfortunately, I already filed NC two days ago thinking the company was right. I will have to file an amendment to get a refund. I was holding off on PA State and Local as I was struggling with accurate reporting of compensation. I will re-engage my company for a corrected W2, but their initial response was that "they put my address and work location in the system and it determined which state taxes apply." I assume they mean ADP? The company also confirmed that from 1/1-3/13 my residence was PA but work location was NC and the "system" said NC gets the taxes during that timeframe. 

Per the North Carolina says "A nonresident employee is subject to N. C. withholding tax on any part of his wages paid for services performed in this State." - What constitutes "in this State"? Does it have to be physical presence while performing the work or does working remote from another state also count for "in this State"?

[ErnieS0]

"This State" means North Carolina because that link from the state of North Carolina.

North Carolina requires physical presence. You are not subject to North Carolina tax if you do not work in the state.

Even if your employer corrects your W-2 you are probably out of luck. They probably won't adjust your withholding because that's already been paid to the state,

However, if they are able to correct your state wages, that will keep you from writing a bunch of letters if you get audited. You won't owe tax because you reported your income correctly, but you'd still have to respond to a notice.

[celisup78]

Thanks for the follow-up. I am most interested in the corrected W2 because then I can file PA State/Local using accurate, W-2 reported numbers and only have to explain things to NC when I file an amendment. Otherwise, I have to produce calculations and explanations for all 3 filings and pray they are 100% accurate should they get audited.