Is deferred compensation considered "source income" in Virginia if I receive it as a Florida resident?

[Nono-Pal]

Several years ago I lived and worked in Virginia.  Part of my compensation was deferred, to be paid sometime after I retired.  I am now retired and living in Florida.  I recently received the deferred compensation, from which Federal and Virginia taxes were withheld.  My question:  Is the deferred comp considered Virginia "source income" that must be declared on a Virginia Non-Resident tax return (Form 763)?  OR, is it not considered Virginia source income, because I received the income as a Florida resident and earned no wages in Virginia the year received?

[SweetieJean · Accepted solution]

"Generally, deferred compensation is taxable in the state where the employee worked and earned the compensation, regardless of whether the employee moves after retirement."

"However, if the employee has elected to take the deferred compensation payments over a period of 10 years or more, the deferred compensation payments are taxed in the state of residence when the payments are made." This can make a big difference if you move to a state that has no state income tax, such as Florida, Washington or Nevada, or at least to one with a lower income tax than where you earned the money.

https://turbotax.intuit.com/tax-tips/tax-payments/strategies-for-managing-your-tax-bill-on-deferred-...

[JohnBklyn]

I am in a similar situation.  I am taking my payments over a 10 year period.  Should I file a return in the state that my taxes were withheld to claim a refund?

[DMarkM1]

Yes, file a nonresident return to claim the refund of taxes withheld from your deferred compensation. Additionally, work with the payor to change the state to your residence state to stop the withholding by the nonresident state. 

[RAuser1]

This situation is similar to mine (except I have to file a MA state return to get my refund).  My question is how do I address the incorrect W2 state wage amount in filing the state return in TurboTax?  My W2 state wages are all allotted as if they were from MA as the source state regardless of the 10-year distribution period.  Is there the ability to correct a W2 form in TurboTax?

[ThomasM125]

@RAuser1 What you will need to do is leave the state wages off your W-2 entry for the Massachusetts return, file as a non-resident and mail your tax return in. Create a memo as to why you left the state wages off the return and attach it to the return.