Filing nonresident tax return for remote work

[TaxBuddy2021]

During 2020, I worked remotely temporarily in another state (which has income tax) during the past year as my company was WFH. The remote work I did was for about a month, after which I returned to my resident state. My W2 only has withholding for my resident state (for which I am still a full time resident).

I understand that my time worked in the other state means that I have income earned in that state. Is the correct process for me to manually allocate my wages to the nonresident state based on the number of days I worked there and file as a non-resident to pay the taxes I owe? Since my W2 only shows my resident state, would I run into any issues here?

I don't believe my employer will issue a corrected W2, or if that is necessary but wanted to understand if I needed to take any other steps. My employer can provide a statement on company letter head stating that I did work remote in another state during that time, but I don't believe this can be attached in an e-file anyway and I am not even sure if it is required.

[TomD8]

@TaxBuddy2021 asked:

<<"I understand that my time worked in the other state means that I have income earned in that state. Is the correct process for me to manually allocate my wages to the nonresident state based on the number of days I worked there and file as a non-resident to pay the taxes I owe?">>

That is exactly the correct procedure.  Be sure to complete the non-resident tax return first, so that your home state (which can tax ALL your income) will credit you for the taxes paid to the non-resident state, on the income that is taxed by both.

[TaxBuddy2021]

Thanks for the quick reply, @TomD8! Quick follow up - is that all that is needed here?

I understand the W2 just shows the withholding that was done over the year, not necessarily where taxes are actually owed, but would I get any questions from state tax authorities based on doing this manual entry when the non resident state isn't on the W2?

For instance, would my resident state ask why I am claiming a credit for non-resident tax paid in another state when my W2 doesn't show the non-resident state anywhere? 

Just want to make sure I get any materials I need to do this correctly. Thanks for the guidance.

[TomD8]

It's true that there will be a discrepancy between your state tax returns and your W-2.  Some taxpayers in your situation print and mail their tax returns, along with a note of explanation.  Others wait to see if their return is questioned.  As you might guess, your situation is quite common in these days of Covid and working from home.

When you do both returns in TT and e-file them, I believe your resident state will get a copy of the other state's return.  That might be sufficient.

[TaxBuddy2021]

Perfect. Thank you for the guidance. 

One last question - it's my first time using this forum so for the purposes of keeping the question simple I mentioned working remotely in 1 other state. If it is actually 2 states in which I did temporary remote work, is it still the same procedure? Manual allocation, non-resident filing in each state, and then full-time resident filing in my home state?

[TomD8]

Yes, same procedure.  Your home state can always tax all your income, regardless of its source.  Other states can tax you as a non-resident on your income earned from work carried out in that state (unless the non-resident state has a reciprocal agreement with your home state).

This web reference lists all the states with reciprocal agreements:

https://www.thebalance.com/state-with-reciprocal-agreements-3193329

Also, be aware that you don't have to file a return in a non-resident state unless your income exceeds that state's filing threshold for non-residents.  But note that filing thresholds are often based on one's total income from all sources. 

[TaxBuddy2021]

Hi! Quick follow up to this message. Do you have any guidance on how to calculate the income that should be allocated to each state? I'm curious how precise it needs to be. I'm a salaried employee and I have flexible time off (so I do not have official PTO days, I can just take some days off). I know the exact number of days I worked in each state. Can I just do the # of days / 365?

Also, my total wage income in my W-2 includes both my salary, a bonus that I received while I was not in either of the two non-resident states, and also RSUs that vested during the year. Do I need to include the bonus and RSU income in my allocation?