Live in NJ, work in NY - got credit to avoid double taxation but got penalty for not paying NJ taxe

[dwinig]

Hi, I live in NJ and work in NY.  I've filled out my W2s for both NJ and NY.  My employer is only withholding NY state taxes.  At the end of the year when I file my taxes, NY gave me a refund for all of the state taxes and I had to pay taxes for NJ.  However, NJ then penalized me for not paying estimated taxes throughout the year.  I've been doing this for many years and this is the first time I've gotten this penalty.  Does this sound right?  Am I supposed to fill out W2 differently to force removal for NJ state taxes from the paycheck or manually pay estimated taxes to NJ?

[rjs]

Something's wrong, but I can't tell exactly what. You should not have gotten a refund from New York, and you should not have had to pay any significant amount of tax to New Jersey. You should have paid New York tax and gotten a credit on your New Jersey tax return for the tax that you paid to New York.

You should have filed a New York nonresident tax return, Form IT-203, and a New Jersey resident tax return, Form NJ-1040. Is that what you did? You might have made a mistake in telling TurboTax which state your income was from, or in entering the state information from your W-2.

I don't know what you mean about filling out your W-2. Do you mean the W-4 that you give to your employer? Your New York employer should be withholding New York tax from your pay, not New Jersey tax. If your job in New York is your only income, or almost all of your income, you should pay little or no tax to New Jersey.

It sounds like your 2022 tax returns were correct. If so, compare your 2023 New Jersey and New York tax returns to the 2022 tax returns and see what's different.

[dwinig]

Thanks for the reply.  

1) Yes I filed non-res NY and res NJ forms

2) Yes my employer is only taking out NY taxes

When I looked more carefully into the underlying forms behind turbo tax, I traced it down to one thing but I still can't explain it.  In the NY Forms, Part-year resident/nonresident allocation worksheet,  it shows Column D as income from NY sources.  For row 1 (Wages), it is showing a number that is lower than I expect.  I then traced that number and found it in NY State Wages/Self-Employement Income Allocation worksheet.  In that worksheet, it shows two W2s that I have but one of them is much lower wages that I expected.   It does show 100% allocated to NY which is correct but the total number is wrong.  I am unable to trace where Turbotax is getting that number as it is not shown anywhere in my actual W2s.  When I look at the Wages for NJ, it has the correct numbers for the W2s and when I look at Federal, it too has the correct numbers.   Since NY is using a lower number, it is then calculating lower tax resulting in a refund.  This almost looks like a bug in the software.  

Can you think of any reason why the NY Wages of a W2 would be much lower (about 30% lower) then the wages reported on the actual W2?

[rjs]

In Part I of the New York State Wages/Self-Employment Income Allocation worksheet, the amount in the New York Wages column comes from box 16 of your W-2. It's not clear whether you looked at the box 16 amount in the W-2 as entered in TurboTax. If you looked at the actual W-2 that you got from your employer, it's possible that it was entered incorrectly in TurboTax. If you imported the W-2 it's possible that an error occurred in the importing.

Are you looking at the forms and worksheets in forms mode in the CD/Download TurboTax software? If so, what color is the incorrect number on the New York State Wages/Self-Employment Income Allocation worksheet, and also in Column D of the Part-Year Resident/Nonresident Allocation Worksheet? If the number is red, that means it's an override of the amount that TurboTax calculated.

[dwinig]

yes I did look at box 16 and what is shown in box 16 is not what is shown in Turbo tax in the NY Wages/Self-Employment Income Allocation worksheet.  Yes, I am looking at the forms and in the Downloaded TurboTax for a MAC.  In the Alloc Wks (Part-Year Resident/Non-resident allocation worksheet, Column D is in blue color.  Then  in NY ST Was/SW Wk (New York State Wages/Self-Employment Income Allocation, the wages are in like an aqua color but the Allocate by Percent column is in blue.  These colors are consistent for all entries including other W2s which are correct.  Nothing is red.

I did find a mistake in the forms - I entered something wrong for the other W2.  I have a number in Box 11 and when it asked me which state it came from I said NY but it is really NJ.  But it makes no sense why Turbotax would take Box 11 and subtract the amount from  Wages box 16 of my other employer.  But once I fixed that, the wages are now corrected in the worksheets.  However, after all this, nothing has changed with the actual refund amounts.  I am still getting a large refund from NY and paying a large tax due in NJ (same exact amounts even after this change).  The only thing I can think of is that my employer is truly deducting too much NY taxes from me.  

[rjs]

I'm going to go back to something I suggested a couple of days ago. In your original question you said you've "been doing this for many years" and never had this problem before. So compare your 2023 New Jersey and New York tax returns to the 2022 tax returns and see what's different.

[dwinig]

yes I see the same thing in 2022 whereby I received a large refund from NY state.  When I do a simple math of calc how much I paid in NY taxes vs wages for NY, I get 10.84%.  So just divide W2 box 17 / box 16.  When I look at the calc in turbo tax, it is using around 6.8% tax.  This is resulting in a large refund.  In 2022, I received a refund from NJ as well but in 2023, I had to pay taxes with a penalty.  I sort of understand this as I had some additional NJ income that wasn't taxed when earned.  I looked into this a bit more and what I see is that my employer is taking out about 7% for NY state tax on a per paycheck basis.  However, I am in a field where there is a one-time bonus each year and when that occurs, I see my employer is withholding close to 11% for NY state taxes.  I am not sure why that is.  Anyway, I went in an adjusted by W4 with the employer for NY state and changed it from 0 allowances to 3.  I will see if this helps.