I am Michigan full year resident; my wife is Colorado full year resident. I cannot determine what income TurboTax uses to calculate the out-of-state income that is subject to tax in both states for the Michigan tax credit.
According to the Michigan tax instructions, line 18 should show "only income tax paid to another government unit(s) on income earned while you were a Michigan resident and taxed by Michigan."
Did you (the Michigan resident) have any income that was taxed by another state? If not, line 18 should be zero.
Thank you for your response. But my issue is what types of income TurboTax uses to determine "out-of-state income that is subject to taxes by both states." It comes up with a six figure that is well beyond any income of that type we earned. My wife is a full time Colorado resident and her entire income was earned there. I am a resident of Michigan and only had some investment income that was attributable to Colorado and was taxed there. Nothing close to the six figure TurboTax comes up with. There seems to be a glitch in the program. TurboTax shows a refund from Michigan of all the taxes I paid into the state in 2021. I'd love to take it if TurboTax's calculations are correct, but I suspect something is amiss.
I forgot to add that I am retired and receive a pension that Colorado includes on taxing, but gives a small exclusion to. They then calculate a percentage (Colorado MAGI divided by Fed MAGI) that they apply to taxes owed which reduces the amount of Colorado taxes actually owed. But there is no figure within the TurboTax worksheets for Colorado that equals what they use for calculating the Michigan tax credit.
Sorry for the confusion.
Are you (the Michigan resident) sure you have income taxable by Colorado?
If you're a full-year Michigan resident your pension income is taxable only by Michigan. It is not Colorado income. By federal law, retirement is taxable only by your state of residence at the time you receive it, regardless of where you actually earned it.
Also, what is the nature of your "investment income attributable to Colorado"?
@JimO2 - TT does not determine which income is taxed in which state - the state tax laws do.
but depending on how the state calculates tax, it may look a lot different when comparing two states' approaches
Some states determine the tax on your all income, regardless of state and then give you a credit for tax paid to another state, so you are not taxed twice on the same dollar.
Other states may just focus on your in-state income and determine the tax on that income and not worry about the out-of state income and the related tax.
is your federal income accurate? is there a duplicate entry somewhere? Hard to beleive there is a glitch, otherwise there would be a lot more complaints in these boards.
is that the issue?
The only investment income I had taxable by Colorado were ordinary and qualified dividends and capital gains that doesn't amount to much. These were from an IRA invested in a short term bond mutual fund. The financial firm I invested through is located in Colorado. They inadvertently used my wife's Colorado address as my residence so Colorado tax was withheld.
I understand that my pension income should only be taxed by Michigan, but for some reason, it is applied by TurboTax on the Colorado forms (though it appears to be given back by Colorado in the calculations I mentioned previously)
I'm going to go through the tax forms again to see if I had entered something in error (though I've done it several times already but your response may shed some light on where I should concentrate my efforts).
Thank you and I'll let you know what I find.
Thank you for your response. I'm going to go through the tax forms one more time to see if I had incorrectly made an entry where I shouldn't have. I will let you know what I find.
@JimO2 - a few more things
<<But there is no figure within the TurboTax worksheets for Colorado that equals what they use for calculating the Michigan tax credit.>>
1) did you enter into TT that one of you resides in CO and the other in MI as of 12/31/21?
2) on the MI return, is your filing status the same as your federal return (that is a MI requirement)
3) both states begin their calculations with the federal AGI (and I presume you file joint on the federal return)
4) start with the CO return, since it begins with Federal AGI, is all YOUR income - including your investment income- subtracted from the CO return. is that occuring on Line 6?
5) the tax due CO is on line 17 of the CO form. This should represent your spouse's CO tax (since all your income was presumably subtracted on Line 6)
6) Then on the MI form, it also begins with federal AGI. is your spouse's income subtracted on line 13 of the MI form?
7) the calculated tax due MI is on line17. Is there a credit on Line 18? is that what you are asking about? THat investment income taxed in CO should create a credit on the MI side unless it was also subtracted on the CO return.
does any of that help?
<<The only investment income I had taxable by Colorado were ordinary and qualified dividends and capital gains that doesn't amount to much. These were from an IRA invested in a short term bond mutual fund.>>
and this doesn't sound right. if this is an IRA, unless you distributed the money out of the IRA, there is no taxable income to report. if you did distribute the money, it is all taxed as ordinary income; there is no quaified dividends or capital gains to report. Did you key in the 1099-R correctly (there should be no 1099-B)
@JimO2 --
"The only investment income I had taxable by Colorado were ordinary and qualified dividends and capital gains that doesn't amount to much. These were from an IRA invested in a short term bond mutual fund."
Investment income earned within an IRA is not taxable. If CO taxes were withheld this suggests that you took an IRA distribution. IRA funds are taxable only when withdrawn and then only by the IRA owner's state of residence. It's a bit unclear, but it sounds to me like you have no CO-source income and therefore owe no CO income tax. If CO taxes were withheld by mistake, then in order to obtain a refund you must file a nonresident CO return on which you report the withholding but allocate zero income to CO . And if this is the situation, line 18 of your MI-1040 should be zero.
Thank you NCPerson. Here are my responses to your questions:
1) Yes
2) Yes
3) Actually Colorado starts on Line 1 with the Federal Taxable Income (Federal AGA minus the standard deduction) and then on Line 6 subtracts an IRA distribution that was attributable to Colorado income. Trying not to confuse the issue, the financial firm that I have investments through inadvertently listed my mailing address (wife's place of residence) as my residence, and therefore, it is shown on the 1099-R with taxes paid to Colorado. Thus, the IRA distribution shown as a subtraction to our Colorado taxable income.
4) Yes. See 3) above.
5) That is correct.
6) Yes it is along with the Pension Benefits Subtraction I receive from Michigan.
7) The investment income was subtracted on the Colorado side and the calculated Colorado tax was brought over to the Michigan side to Line 18 and then a credit calculated. This is the crux of the issue. There is a worksheet in the TurboTax forms for Michigan that is titled "Credit for Income Tax Paid to Another State". To calculate the credit, it starts with "Income Earned in Another State or Locality Subject to Michigan Tax." I cannot determine how it calculated the dollar amount shown on Line 1 of that worksheet. What income did they include to come up with that figure? It doesn't show any calculations for that dollar amount.
Thank you for your response TomD8. See my responses to NCperson. I did take an IRA distribution in which Colorado tax was withheld and Colorado did refund. As stated in my response to NCperson, Line 18 on Michigan does show a credit. From what I can gather, the credit is calculated from the Colorado taxes withheld from my wife's earned income even though she is a full year non-resident to Michigan and paid no taxes to Michigan.
Yes I did. It is coded as Normal Distribution on the 1099-R with Colorado taxes witheld.
Let's focus on Line 6 of the CO form.... you state that the IRA distribution is subtracted, that is great.
Is ALL your income subtracted from Line 6? look at Colorado Form 0104AD, which is additions and subtractions.
if so, then the CO return should be correct.
please confirm and then we can focus on the MI return.
"I did take an IRA distribution in which Colorado tax was withheld and Colorado did refund"
Then Line 18 of your MI-1040 should be zero, since in fact you paid no tax to CO.
In the Personal Info section of TT, did you and your wife both indicate that you had no "Other State Income"? And did you each enter your "State of Residence" correctly?
@JimO2 - okay ; I think I figured it out by replicating what you stated in TaxSlayer, which is a competing product
1) on the CO return, make sure you are tagged as a non-resident and your spouse is tagged as a resident. Look at Form 104PN. if you then review the CO return, you should see the subtraction for the non-resident income and then the tax is calculated on your spouse's income only.
2) then on the MI return; this is a little tricky. You must file with the same status as on the federal form. I indicated in Taxslayer that you both were non-residents. (I can't see a way of marking one as resident and one as non-resident, esp since the filing status has to follow the federal return.). Your spouse's income should automatically be subtracted from Line 13 and then the tax is calculated on Line 17 and Line 18 is blank! Further look at Schedule NR where your state standard deduction is adjusted to reflect only your income is taxable in MI
does that work?
1) - I am tagged as a CO non-resident and my wife is tagged as a resident.
- The only subtraction as a non-resident is my IRA distribution. But the tax is not calculated on my wife's income only. Line 32 of Form 104PN has the Federal MAGI. Line 33 has the CO MAGI (my wife's CO income minus my IRA distribution (?)). On Line 34 a percentage is calculated by dividing CO MAGI by Fed MAGI. Line 36 applies that percentage to Line 35 (what appears to be tax calculated on income from both my wife and me, i.e., Form 104, Line 7 has Colorado Taxable Income as our Federal Taxable Income minus my IRA distribution amount).
2) - Michigan return has same status on Federal (i.e, I'm a full year resident of Michigan; my wife is full year resident of Colorado).
- Line 13 is correct. Line 17 correct based on exemption allowance calculated. Line 18a has Colorado Tax from CO 104PN, Line 36. Line 18b provides a credit.
- Schedule NR reflects only my Michigan income when adjusting the standard deduction
1) Colorado - that appears to be correct. The form is calculating the state tax on the ENTIRE federal income but then applying the percentage as calculated on Line 35 against that tax and says that percentage is the CO portion and forgets the rest.
2) Now, Michican is still a problem. You should NOT get a credit for tax paid to CO on CO income if MI is calculating tax on MI income only.
Please review the MI 1040 form. At the top left, Box 7b should be checked indicating you are filing married-joint. Box 8b -
and I bet this is the problem
- should be checked indicating you are non-residents; as I stated earlier, I do not see a way to tag one as a resident and one as a non-resident; the form simply is not set up that way. That should automatically create Schedule NR, eliminating your spouse's income from the calcuations and determining the tax based solely on your MI income. Review Schedule NR and then Line 18 should be zero.
It simply does not work correctly to state that you are both residents. If Line 8a is checked as a resident it will not calculate property. Under this approach the tax paid in CO becomes a credit in MI on Line 18. I tested this in TaxSlayer and can see it's not correct.
Let me know what you discover.
Thank you. Putting both of us as non-residence of Michigan zeroed out Line 18. That appears to have been the problem (though it only changed the amount of overpayment by negative $12). But what is of concern is my Federal and Colorado showing that I am full year resident of Michigan and my wife is full year resident of Colorado. According to TT and Michigan instructions, I have to submit my Federal and Colorado returns with my Michigan's (had to do an amendment to change filing status). Won't that be a red flag to Michigan suspecting that I'm cheating or at least making an error regarding residency on my Michigan return?
@JimO2 -
You ARE fully disclosing your residency status! you are not hiding anything!
We can infer from the NR instructions, this is the correct approach. Look at Page 2 of Form NR, under 'exemption allowance" it states:
"Use lines 15 through 19 to figure your prorated exemption allowance. NOTE: If one spouse was a full-year Michigan resident and the other a part-year or nonresident, and you are filing a joint return, complete Worksheet 6. Do not complete lines 15 through 18."
why would they print this on the NR form, if they didn't expect Michgan residents with Non-resident spouses to complete the form in the manner you have?
the only other comfort to be had is to call the State of MI revenue office and just ask, "hey, if my spouse is a non-resident and I am a resident, what box am I to check - 8a or 8b?"
@NCperson wrote: "Box 8b - and I bet this is the problem
From page 9 of the 2021 MI tax instruction booklet, regarding Line 8:
"If you and your spouse had a different residency status during the year, check a box for each of you."
And from the Line 8 Box on the MI-1040 form itself: "Check all that apply."
So @JimO2 should check both boxes 8a and 8b.
@TomD8 - good catch! I had scoured the instructions for such a reference unsuccessfully previously.
@JimO2 - once you adjust, the exemption on Line 19 of schedule NR should be $4900 - which is a full exemption for you and nothing for your spouse (which makes sense as a CO resident and a MI non-resident)
However, while section 8 of the MI1040 states to check all that apply, I could not get TaxSlayer to check both 8a and 8b boxes - not sure if that is by design or not, but the math makes sense.....there is only MI income listed and only 1 full exemption.....