Live in MI, work in ohio

[Echosbluechaos]

So I live in Michigan, but work in Toledo, OH. My employer refuses to withold michigan income tax because she states it will significantly increase her payroll costs as she would have to apply for an account to withhold michigan taxes. My employer states that if I have ohio taxes withheld that I still file an ohio return and it will go to MI. I guess I'm just confused about the whole thing. Help me?

[hbl3973]

Echosbluechaos,

Take a look at State Tax Reciprocity  which says that you can submit a Form IT-4NR to your Ohio employer to stop Ohio state tax withholding.  However, you would need to make Michigan estimated tax payments vi form MI-1040ES to ensure you paid enough Michigan income tax through the year.  That form and its instructions may be found at Michigan Individual Income Tax Forms .

[KrisD15]

Well, what she says is partially true. 

Under normal circumstances, the employer can withhold state tax for the state in which the employer is located and leave it up to you to sort things out at tax time.  

Under normal circumstances, the employee (that lives in State 1 and works in state 2) files a non-resident tax return for the state in which he works (state 2) and pays tax on the wages earned in state 2. 

Next he files for the state in which he lives (state 1) and claims all his income. When the tax for all his income is computed, he gets a credit for the tax he paid to state 2 on his state 1 tax return so that the income is not taxed twice. 

That is why you should do the non-resident state return FIRST, so TurboTax knows what to use as a credit on the resident state return. 

Your situation is not "normal" because Michigan and Ohio have a reciprocal agreement. That means both Michigan and Ohio agree that a Taxpayer Employee should ONLY pay tax to the state in which he lives. 

So if you live in Ohio and work in Michigan, you only pay Ohio tax. If you live in Michigan and work in Ohio, you only pay Michigan tax. 

In your situation, you can file a OHIO state return to get the Ohio tax withheld BACK, then file a Michigan return and pay your Michigan tax. 

You CANNOT have Ohio forward the tax to Michigan. States don't do that. 

In your situation, you should give Form IT4NR to your employer. They give it to their payroll. This form allows you to have only MICHIGAN tax withheld.

that way you don't spend the time, energy and expense of filing two state returns. 

If your employer won't do this for you, they must EXEMPT you from OHIO tax, meaning if they won't properly withhold Michigan, the least they can do is NOT withhold Ohio.  If you go this route, you must claim ALL you income on your Michigan state return and pay the tax this way. 

Be aware that you might also need to make "estimated tax payments" to Michigan so that you are not penalize for not paying within the proper quarters. 

Form IT4NR

@Echosbluechaos

[Hal_Al]

"My employer states that if I have ohio taxes withheld that I still file an ohio return and it will go to MI."

No. That's wrong.

While you employer is not required to withhold MI state tax, he is required to NOT withhold OH tax if you submit OH form Form IT-4NR to him (https://tax.ohio.gov/static/forms/employer_withholding/generic/wth_it4nr.pdf)

For 2022, you will have to file an OH return to get a refund of the state tax withheld. But you still have to file and pay MI income tax.  OH will send the refund to you, not the MI tax people. 

Be advised that the reciprocity agreement does not apply to local city taxes.  If your employer is withholding Toledo city income tax, you cannot get that refunded. 

Michigan will give you a credit for Ohio city tax withheld,  on the MI state return, but you have to attach a copy of the city return. So, even though the Ohio city does not require you to file a city return, you have to file one to get the MI credit, even though there will be no tax due or refunded from the Ohio city.