Live in NJ and Husband's Company Withheld NC Taxes for 2% of Earnings When He Travels to NC Office

[LizB]

Quick question--we live in NJ and my husband works in NJ with NJ taxes withheld.  A handful of times out of the year my husband travels to his company's Charlotte, NC office for meetings/offsites with his team. After 16 years with the company, they have just started withholding NC taxes for those few visits which is rather irritating since I'm wondering if I have to now pay to file in NJ and NC. Any insight on the rule? His earnings in NC are literally 2% and NJ is 98%.

Thank you!

Liz

[TomD8]

His company is following NC tax law.  NC can tax non-residents on "NC-source" income.  Income earned from work physically carried out within NC is NC-source income.  He must file a non-resident NC tax return if his income exceeds NC's filing threshold, which is shown here:

https://www.ncdor.gov/taxes-forms/individual-income-tax/individual-income-filing-requirements#Filing

Note that the NC filing threshold amounts are based on federal gross income, not just on NC gross income.

[rjs]

After 16 years the company finally got it right. Income that your husband earns for working in North Carolina is NC source income, and he has to pay NC tax on it. Since he lives in New Jersey, all of his income is subject to NJ tax, no matter where the income is from. So yes, you have to file a NC nonresident tax return as well as your NJ resident tax return. You will get a credit on your NJ return for part or all of the tax that you pay to NC. New Jersey gives it the somewhat unwieldy name of Credit for Income Taxes Paid to Other Jurisdictions. Prepare your NC nonresident tax return first, then your NJ resident tax return, to make sure that the credit is calculated properly.

If his NC income is below the NC filing threshold he is not required to file the NC tax return. But he will want to file anyway, even though it's not required, to get a refund of the NC tax that was withheld.

[Hal_Al]

Q. I'm wondering if I have to now pay to file in NJ and NC. 

A. Yes.

The general rule is (it's not just NC): your report all your income on your home state return, even the income earned out of state. You file a non-resident state return for the state you worked in and pay tax to that state. Your home state will give you a credit, or partial credit, for what you paid the non-resident state. You will have to file a non resident NC state return and pay NC tax on the income earned there.. You will also file a NJ full year resident return and calculate tax on ALL your income. NJ will give you a credit, or partial credit, for the tax you pay NC. So, there will be little or no double taxation, but you have the cost and hassle of filing two state returns. Do the nonresident state return first.

You might want to ask you employer, why after 16 years, they thought this was needed. Chances are, they were getting some pressure from the NC tax people. 

Technically, in this situation, the NC tax must be paid, but "nobody" does. See http://money.cnn.com/2013/06/28/pf/taxes/business-traveler-tax-threat/  

[DMarkM1]

As answered by others earlier, yes there likely needs to be a NC return filed.  Assuming you file a joint federal return he has the option to file a separate NC return with only his income and deductions reported. Below is an extract from the NC Department of Revenue for reference.  So if his gross income is below the NC filing threshold then a return is not required; but if you want the withholding refunded, you must file.   

Additionally, TurboTax desktop products make this task easier.  Here is a link that will help with the process.  Basically, you will create and file your joint federal and NJ returns.  You would then create a "Mock" federal separate return with only your spouse's income and deductions.  This will flow to a NC separate return.  You will need to print/mail the NC return because no federal separate return is being e-filed.  Also per the extract below you include copies of both the separate and joint federal returns with your NC filing. 

"If an individual chooses to file a separate North Carolina return, the individual must complete either a federal return as married filing separately, reporting only that individual's income and deductions, or a schedule showing the computation of that individual's separate income and deductions and attach it to the North Carolina return.  In addition, a copy of the complete joint federal return must be included unless the federal return reflects a North Carolina address."