KY State and Local Taxes for Working Remotely

[mortezadm]

Hello,

Last year we moved from KY to VA. My wife had a job in KY and used to commute to her office but then started working remotely from VA. So We are now filing part-year resident tax for both VA and KY. Her employer however kept withholding KY tax as her role was initially defined as in-person job (not remote). Here's my couple questions:
1- how should we file KY state tax?
    a) take only portion of the income for KY and the rest for VA; or,
    b) all the income taxable for KY for the whole year, but then we take that paid tax to KY as credit for VA?

2- If the answer to the question above is "a)", can we file a return for the local taxes paid to Louisville/Jefferson County (where we lived) to get back a portion of what was paid?

[TomK2023 · Accepted solution]

All of your wife's income is sourced from KY.  File a part-year resident tax return for both KY and VA.  Complete the KY return first.  You should get a partial KY tax credit for the work actually performed remotely from VA.  

Form W-1REE is a tax refund form used by any employee who has compensation connected to activities performed outside of the Louisville/Jefferson County area, whose employer has withheld and remitted the Occupational License Tax. 

Form W-1REE must be hand-delivered to the Louisville Metro Revenue Commission or postmarked by two (2) years from the date the annual reconciliation W-3 and W-2 data is due. 

The annual reconciliation and W-2 data is due on or before February 28th of the following year in which the compensation was earned.

2022 Form W-1 REE pdf

APPLICATION FOR EMPLOYEE REFUND OF OCCUPATIONAL TAXES WITHHELD INSTRUCTIONS  pdf

Louisville, KY Forms and Publications website

[mortezadm]

Thank you for the detailed answer. I just wanna make sure I was clear: we did not commute to KY in the second half of the year, when we reside in VA. Should we still pay tax on all of that to KY and then get its partial credit for VA?

[TomK2023]

When you enter your Personal Info in the program, it will ask you if you lived in more then one state and did you move.  You will enter the appropriate dates, and the program will compute how much tax you should owe to each state.  

[mortezadm]

Yes, but I've modified it a lot. I'm wondering how I can reset it.
I found this and am doing it again.

[mortezadm]

Today, I received a "Missing Documentation" letter from the Department of Taxation of VA. They requested copy of the tax that I paid to KY and am getting credit for it. I am not sure how to proceed. I used TurboTax and I can see that the requested document was at the bottom of my VA tax return filing, but after I called them they refused to help! The files that I have and I can send do not have a signature at the bottom as they were filed electronically. Would you advise how I may proceed?

[CatinaT1]

It sounds like they are requesting the actual W2's or other documents that show KY State Tax withholdings. Many times they want to verify this information while processing the return to avoid fraud.