Double taxation part year worker in New York

[DoctorJJ]

I worked part of the year in NY but my residency is in AL. My W2 reports, for example, $1500 for federal wages (W2, line 1), AL state wages ($1000, line 16 of W2) , and NY stage wages ($1500, line 16 of W2). Remark that NY wages are the same as Federal wages in the W2, which is the way NY does it. In actuality, I only made $500 in NY, which is what I put in the state allocation of TurboTax (TT) step-by-step. TT computes my NY taxes on $1500 and claims their 33.33% (500/1500) of that, which is fine.

However, for AL, TT wants to compute my taxes on $2500 ($1000 + $1500), about $125 (5% AL tax rate), and credits me for only 20% (500/2500) of AL tax calculation, $25 ($125*0.2). I owe AL $100 ($125 -$ 25) this way.

To avoid double taxation, I think TT should compute my AL taxes on $1500, giving $75, and credits me for 33.33% (500/1500), $25, of the AL tax calculation. I would owe AL $ 50 ($75 - $25) this way.

When I try to manually insert in the TT AL Schedule W2, column J section that my additional taxable wages from other states is $500, not $1500, my efile gets rejected by AL.

Note: I neglected deductions to make my point clearer. Numbers provided are examples.

Anyone is familiar with this situation where you are a non-resident of NY and a resident of another state? How do you deal with this case? How do I supply TT the correct info to avoid double taxation?

[RobertB4444]

Because you are a resident of Alabama you are taxed on 100% of the income that you earn in any state while you're a resident.  However, Alabama also will give you a credit for taxes paid to another state and you can deduct that amount from the taxes owed to Alabama.  The TurboTax system should have entered the taxes paid to New York into your Alabama return as a credit amount after you did the non-resident New York return.  This credit avoids the double taxation but you have to have the income there in Alabama to qualify for it.  

So you need to fix your income back to where it belongs and make sure that you are getting the credit for taxes paid to other states.

@DoctorJJ 

[DoctorJJ]

This was my question.

Anyone is familiar with this situation where you are a non-resident of NY and a resident of another state? How do you deal with this case? How and where do I supply TT the correct info to avoid double taxation?

[RobertB4444]

You first need to file the New York non-resident return.  If you filed the Alabama return first then the whole thing did not calculate correctly.

Then you prepare the Alabama resident return.  Alabama will give you a credit for the taxes that you paid to New York so that you are not taxed twice.

@DoctorJJ 

[DoctorJJ]

AL did not give the credit correctly and double-taxed me, as I detailed in my original question. I did NY first and did AL last.

My questions are.

Anyone is familiar with this situation where you are a non-resident of NY and a resident of another state? How do you deal with this case? How and where do I supply TT the correct info to avoid double taxation?

[DawnC]

You can't choose how you want to prepare and calculate your returns.   TurboTax uses federal and state tax law to prepare and compute taxes.   Each state has its own set of specific rules.   Your resident state taxes you on 100% of your income - always.   And as @RobertB4444 explained above, your resident state will issue you a credit on your resident tax return to remove the impacts of double taxation.  

Enter your W-2 as it appears.   Then prepare your NY non-resident return first, before your AL resident return.   This will ensure TurboTax applies the credit for taxes paid to another state correctly.    When you go through the NY nonresident return, only allocate the amount that was earned while you were physically in NY.    There is an article below that provides further details on filing returns in multiple states.  

Multiple States—Figuring What's Owed When You Live and Work in More Than One State 

Do I have to file tax returns in more than one state?

Why would I have to file a nonresident state return?

How do I file a nonresident state return?

[DoctorJJ]

AL did not give the credit correctly and double-taxed me, as I detailed in my original question. I did NY first and did AL last.

I would appreciate the input of anyone who has actually dealt with this scenario in TT.

Anyone is actually familiar with this situation where you are a non-resident of NY and a resident of another state? How do you deal with this case? How and where do I supply TT the correct info to avoid double taxation?