Getting a refund from a state where no income was earned

[jas99]

I live and work in GA, but my employer is based in Philadelphia, PA. When I started working last year, my employer incorrectly withheld taxes for PA and the city of Philadelphia for my first two paychecks. They are having trouble correcting it retroactively. How do I get a refund for the taxes paid to PA and Philadelphia, without paying to file a state tax return there?

[ErnieS0]

You will not be able to get a refund of Pennsylvania income tax withheld in error without filing a tax return. If PA tax was withheld in error, you will have to file a non-resident PA income tax return (PA-40) to get a full refund of your withholding. To do this,

• Go to the screen Compensation Summary and click Edit,
• On Verify Income, check Entire amount of this income is not taxable in PA.

This will create a non-resident PA tax return with $0 wages.

Mail your PA return to Harrisburg along with your W-2 and a copy of your New Jersey return, showing all the income was properly reported to PA. You can e-file, but if so, you may receive a letter from PA asking why your reported $0.

Here are PA’s instructions:

If you are a resident of a reciprocal agreement state working or performing services in Pennsylvania and your employer withheld Pennsylvania income tax, you may request a refund of the Pennsylvania tax. You report zero taxable compensation on Line 1a and the Pennsylvania tax withheld on Line 13. Submit federal Form W–2 or a photocopy and a copy of the resident income tax return that you filed/will file with your resident state. Also, submit a statement explaining that you are a resident of a reciprocal agreement state.

To receive a refund of Philadelphia City wage tax, fill out a refund petition. A petition for refund of "erroneously withheld wage tax from an
employee must be made by the employer for and on behalf of the employee".  The 2020 form is not available at this time. Check back at Wage Tax refund form.

[jas99]

Thanks! I do not live in a reciprocal state...I live and work in Georgia, not New Jersey. Is the process different for a non-reciprocal state?

[DianeW777]

No, the process is not different.  The fact that you did not physically work in PA or Philadelphia is the reason you are entitled to a full refund. You may need to attach an explanation that the employer withheld the tax in error and that you were never physically present in that state or city.

You must still file the PA return and the refund petition for Philadelphia City to obtain your full refund.  You can print the forms you need from the links provided to eliminate paying additional fees. For the Wage Tax Refund form, you may have to wait until the 2020 form is posted or print the 2019 form and cross out the year to enter 2020. The Form PA-40 is available.