Inconsistent State and County income in W2 | Employer taking too long to fix

[noviceattax]

Dear Community Members,

My W2 has information about two states. I was a part-year resident in both IN and IL. I moved in the middle of the year. My W2 has the following two discrepancies:

1. IN state income (box 16) and IN county income (box 18) are not the same. Note that I did not live in two different counties in IN. Box 18 is lower than box 16.
2. Next, box 16 for IN and box 16 for IL do not sum up to be equal to federal wage (box 1). Box 16 for IN + Box 16 for IL is greater than box 1.

I have created a ticket with my employer for more than a month ago to help me resolve this. However, they have not yet provided any solution and are blaming ADP for it.

What is the solution for me? What should I do in this case? Do not hesitate to get back to me in case of questions.

Thanks,

[DMarkM1]

First you are going to enter the form W2 in the federal interview to match your copy of the W2.  You will be making the allocations in the individual state interviews not in the federal W2 entries. 

Which state was your working state?  That state is going to tax you on all those wages.  Some of it will be as part-year resident and some as non-resident, since you moved.  You should work that state return first.  

You will need to calculate what the state allocations should be.  You can do that by dividing your box 1 wages by the total number of pay periods in the year.   Then multiply that pay per period by the number of periods in each status. 

First the non-resident period in your working state.  That is the time you were living in the non-working state.  Only allocate that amount of  wages to the working state at this time.  Finish that working state interview and take note of the income and income taxed by that state.  Those numbers will be used to complete the part-year return of the non-working state and claim a credit for "taxes paid to another state."

Next, complete the part-year return of the non-working state. Allocate the income as noted earlier (it should match the non-resident period for the working state that you just completed).  When you get to the credit section look for the credit for "taxes paid to another state" and complete that topic as well.

Finally go back to the working state interview and now be sure that the allocation includes all the wages since you worked in that state the entire year.   

In the end you will have two part-year returns.  One for a state you worked in all year that is taxing all the wages (the resident time and non-resident time). The other state will tax you only for the wages earned while you lived there (resident time) and will include a credit for taxes paid to the working state for those wages. 

[noviceattax]

@DMarkM1 , Thanks for the response. When I was living in IN, I had a remote allocation to IN. So, IN was my working state. Then I moved to IL when my job was also transitioned from remote to office in IL.

There may be a 2-3 days error in the system entry which could be showing one of the following discrepancies:

1. I moved to IL but my job is still in IN or
2. I still live in IN but my job moved to IL.  

Let us say it is the first error then do I need to fill two forms for IN? One as a resident and another as a non-resident?

Thanks, 

[DMarkM1]

No.  You will only be working a part-year resident return for each state.  Don't worry about the W2 numbers.  When you allocate to the states in the state interviews you will allocate correctly based on what really happened.   You and your job left IN when you physically left IN on mm/dd/yyyy.   In this scenario there is no credit for taxes paid to another state since there will not be any overlap.

If you need to allocate by working days you can do so.  Total the working days in the year (excludes weekends/holidays/vacation).  Divide the income by the number of days and then multiply the result by the number of working days in the state.

[noviceattax]

Thanks a lot for clarifying this; it helps. So, won't this be an issue if the numbers I report as my state wage in the tax return forms differ from box 16 of my W2 for that state?

Thanks,

[DMarkM1]

Not an issue.  IN is looking at your total wages and the date you report as leaving IN.  Be sure to keep records of your allocation calculations and even evidence of when you left IN in the unlikely event it ever comes up again.  

[noviceattax]

Alright! Thanks, @DMarkM1 . I appreciate your help. I also talked to the payroll department for more details. I confirmed the exact date of the move in their records. Moreover, their records show that my job location and residency move from IN to IL was the same day.

She also told me there is some discrepancy in the W2, and I will get a corrected one, but she is unsure when. 

I want to understand one more thing with you:

Scenario: 

1.  My job and residency location were IN for the first nine months of the year. However, I was on unpaid leave for seven weeks during this period. So due to this unpaid leave, my IN income is not 75% of my total annual or federal income; it is less than 75%.
2. Additionally, my current W2 shows an incorrect IN income (box 16), a higher value than actual IN income.

Concern/Question: If I fill a lower value in my tax return form, lower than 75% of the total federal and W2's box 16, how will the officials verify that I have filled the correct values in my tax form? Won't this lead them to send me a clarification notice? Should I be sending some additional documents?

Please do not hesitate to ask for clarifications.

Thanks,

[DMarkM1]

You should report on your return what really happened.  Having said that if you know there is a correction coming you should wait; it may save you an amendment down the road if something besides box 16 information changes.   

Whether or not you get a corrected W2 the allocations come from your box 1 wages and the work time in each state.  So that should not change (unless the correction is to box 1).  

There is nothing extra necessary to send in with your returns.  Keep a record of your calculations/allocations in the unlikely event that it comes up in the future.  As long as your method is a reasonable/logical method you will be good to go.  Being on unpaid leave during the time in IN would reasonably and logically lower the percentage of total wages that belong to IN.    

[noviceattax]

Thanks for the response, @DMarkM1 . So in that case I should apply for extension with both the states. Right?

[Cynthiad66]

Yes, it's best to go ahead and file an extension anyway, for three good reasons:

1. If you end up owing (for example, if you corrected an error, forgot to enter a W-2, got a revised 1099 form, etc.) an extension protects you from the late-filing penalty.
2. Some states require that you file a federal extension to get a state extension.
3. It only takes a few minutes, and it's free!

Related Information:

• Do I need to file an extension for my personal state taxes?

[noviceattax]

Thanks @Cynthiad66 and @DMarkM1 for providing clear answers and appropriate pointers. I appreciate the help.

I need two followup clarifications:

1. I need to file with IN and IL. Based on the link you shared, I don't think that it is must to file federal extension for getting IN and IL extension (see the screenshot below). My understanding is that if I file for federal extension I will automatically get for IN too. However, I have already filed my federal return with form W-7 (ITIN for my wife). So, I don't need to file an federal extenstion to get IN extension. I just need to file with IN separately. Right?
2. The link says that to avoid penalties and interests one should pay by April 18 if they owe. However, since there are errors in my W2, I cannot calculate the exact amount I owe till I don't get corrected W2. So, I am assuming I can pay a lumpsum (upper limit) now and then will adjust it in the final returns and may get some return later. Is that correct?

Thanks,

[MarilynG]

You can actually file an Extension Request through your State Interviews in TurboTax (towards the end of the interview). 

Yes, you will be able to send a payment with your Extension Request, which is recommended.

If you believe your Box 1 Income on your W-2 is correct, you could Allocate this income on your Part-Year Resident state returns now and not need to request an extension. 

You mentioned 75% of your income to one state (which includes W-2 income and paid family leave) and 25% to the other state.

Leave the incorrect state info in Boxes 15-17 on your W-2 entry blank and enter your own allocated amounts. 

Click this link for more info on Allocating Income as a Part-Year Resident. 

[noviceattax]

@MarilynG, Thanks for the response. It will be complicated to determine my exact W2 income for states, as I had some bonuses, and some unpaid leaves. For simplicity, I would prefer to wait for the corrected W2. 

Let me rephrase my previous question with a hypothetical example, if I make a rough upper limit estimate of my state taxes and send the difference to both the states. Lets say I send an additional $1000 to both the states. Later on, with correct W2,  it comes up that I actually had to send $300 only to each of them. So, I can file the return later in say, September 2022, and get the remaining $700 from each of them. Right?

Thanks,

[DMarkM1]

Correct.   You should send in a payment by the due date 18 Apr if you anticipate a tax owed.  Whenever you file your returns you will indicate that you made a payment with the extensions.  When your taxes are calculated on your returns those payments will be accounted for and if you paid to much you will get a refund.  

In TurboTax in the "Deductions & Credits" tab in the "Estimates and other taxes paid" section using the "Income Taxes Paid" topic you will enter those state extension payments.