Lived in PA, worked in both NY and PA

[mpkostek]

I lived in PA for all of 2020. I worked in PA in Jan 2020. I worked remotely for a company located in NY from Feb 2020 - Dec 2020. Around June 2020, I pointed out to my payroll department that my paystubs said "New York" on them, even though I lived in PA. This prompted them to make an adjustment in their system, which resulted in my paystubs listing "Pennsylvania" on them, and I was refunded a few extra hundred dollars, which was explained to me as being the difference in state taxes between NY and PA. I have W2's from both companies, they both list "PA" in box 15 "State".

I'm unsure how to file this. I've gone through the PA and NY filing processes, and I'm left with being charged ~$60 in PA, and ~$4500 in NY. The NY company W2 shows that I paid ~$3000 in box 17 "State income tax". I assume my state refund/payment would be close to $0. How do I file this with TurboTax?

[TomD8]

ALL your income is taxable by your home state of PA.

Unless you are working remotely as a requirement of your NY employer, and you are assigned to or working from a bona fide PA office of your employer, your remote work income is also taxable by NY.

https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf

In that situation you must file a non-resident NY return in addition to your normal home state PA return.  (You should also file a non-resident NY return if NY taxes were withheld from your pay, so as to receive a refund of any excess NY withholding.)

You'll be able to take at least a partial credit on your PA return for the tax you pay to NY on the income taxable by both states, so you won't be double-taxed.

In TurboTax, be sure to complete your non-resident NY return first,  before you do your PA return, so that the credit is calculated and applied correctly.

[mpkostek]

Do I mark the NY job as non-taxable for PA? That is the only way I can get my "PA Refund" amount to show around $3000 instead of me owing $60, on top of owing the $4500 for NY.

[mpkostek]

Also, is it certain that I even need to file a New York state return? Both of my W2's list PA in box 15. The company that I worked for in New York actually lists Texas as it's employer address.

[TomD8]

@DanielV01 -- Can you assist?

[mpkostek]

Any ideas?

[DanielV01]

@TomD8 is correct that the income is taxable in New York.  New York treats telecommuters working for a company operating in New York as if they are working inside of New York also.  The fact that your company is located in Texas does not matter.  They have a New York location that you work at, which creates a New York nexus, or taxing responsibility, so your income is taxable in New York if it is earned there, which New York's position is that it is.

Having said that, @mpkostek I do know that you do need to mark the NY income as "not taxable" in PA.  This is so the income is not double-counted because of programming that PA requires of tax preparation software.  By removing this income, it allows PA to then apply the NY taxes to be paid as a credit against PA tax, bringing PA (presumably) down to $0 and then allowing you to get a full refund of PA tax (which, of course, you will need to pay NY.

You will want your company to start withholding for NY.  I can all but guarantee that if you don't file and pay NY taxes, NY will aggressively pursue your income as being taxable there.  They are well-known for taking that position.

[mpkostek]

Thanks @DanielV01  and @TomD8 for your help. I have a clear idea of what to do now, and understand the "why" as well!

[mpkostek]

@DanielV01 @TomD8 Thanks for your help so far. I reported the income to NY, and marked the income as not taxable to PA. However, when I get the the final "Transmit Returns Now" section, I am stuck in an endless loop where I click "Transmit Returns Now", then am prompted with a "We Need to Make One More Check" window, followed by "Gross Compensation Worksheet: Include W-2 as taxable Full-year PA resident must include all income. Line item for W-2 number should marked taxable to PA."

If I check the box, it wipes out the PA refund amount close to 0, and now Turbotax is claiming I owe the full $4500 to NY, while not getting any money back from PA. What do I do now?

[TomD8]

I'm not sure this answers your question, but since 11 months of your income was taxable by NY, it makes sense that most, if not all, of your total state tax bill would be due to NY.  NY gets paid first.

All your income is taxable by PA, but since you can take a credit on your PA return for the taxes paid to NY - which has a much higher tax rate - it makes sense that your net PA tax bill would be zero or close to it.

[mpkostek]

@TomD8  @DanielV01 It seem like the TurboTax software is not letting me perform this though. It's forcing my to claim my income to both states.

I'm starting to wonder if I just shouldn't need to report income to NY since both of my W2's say "PA" on them. What do you guys think?

[TomD8]

As stated earlier, NY tax law is that, unless you are working remotely as a requirement of your NY employer, and you are assigned to or working from a bona fide PA office of your employer, your remote work income is also taxable by NY.

https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf

So, unless your remote work meets that exception, you must file a non-resident NY tax return in addition to your home state PA tax return, and thus your incomes is reportable to both states.  PA will allow you to claim at least a partial credit for the tax you pay to NY on the income taxed by both states.  Remember to complete the non-resident NY return first, before you do your home state PA return, so that the program can calculate and apply the credit correctly.

[mpkostek]

@TomD8 @DanielV01 If that is true, the TurboTax software is not letting me do this. It will not let me claim any kind of credit for the NY income. As soon as I mark it as taxable, my PA refund drops by $3000. Is there a way to wipe out all state tax return info so that I can start over and make sure I enter in the data in the order you laid out?

[PattiF]

You can delete your state return in TurboTax Online as long as you haven't paid or registered yet.

1. Sign in and open your return if you don't already have it open.
2. From the left menu, select State (if you don't see this menu, select the menu icon in the upper-left) and then select Continue on the Let's get your state taxes done right screen.
3. On the Status of your state returns screen select Delete to the right of your state, then answer Yes.

If you don't see the option to delete your state (you'll probably see Edit instead), you've already paid your TurboTax fees (including the state fee) or registered your free version while the state was on your return. If you've done either of these things, you can't delete your state return.

Here's how to clear (delete) a state return in the TurboTax for Windows CD/Download software:

1. With your return open in TurboTax, switch to Forms mode by clicking the Forms icon in the upper right corner of your screen.
2. From the File menu in the upper left corner, choose Remove State Return. (This won't delete your state program, just the state tax return.)
3. Select the return you want to delete and click Remove. Answer Yes to confirm.

If you want to start a new state return, select the Step-by-Step icon in the upper right corner, and then select the State Taxes tab.

{Edited 09:49 AM PST}