Maryland taxes withheld in error?

[spsnyder54]

My wife and I were both residents of the State of Maryland for all 12 months of 2021 and filed a Maryland resident joint return. I retired on 12/31/2021 and we were full time residents of the State of South Carolina for all 12 months of 2022. I received a 2022 W2 from my former employer for my last paycheck which included a lump sum leave payout. My payroll provider deducted taxes for the State of Maryland even though I was a resident of South Carolina starting 1/1/2022. My wife works remotely in South Carolina for a business located in the State of Maryland. She does not travel to Maryland for work or provides any services in the State of Maryland. Her payroll company deducted income taxes for the State of Maryland for the first 3 months of 2022. When I completed my 2022 Non Resident Maryland State return, I attempted to check the box for "Maryland Taxes withheld in error" but during the error check process, the Turbo Tax software instructed me NOT to check this box. I allocated all 2022 income earned to the State of South Carolina for my resident return and zero income to the State of Maryland for my Non resident return. I believe I should have checked the box for "Maryland Taxes withheld in error" and followed the Form 505 instruction 4. I am due a large refund from the State of Maryland for the 2022 income taxes that were withheld. My Maryland return has been sitting in the "still processing" stage for longer then expected and I have not received my refund. Can you please advise?

[AmyC]

1. The program was right. As a nonresident, your last paycheck came from your work in MD. MD nonresident instructions state: Taxable or Reportable income...on income from a business, trade, profession or occupation carried on in Maryland.

Your MD return:

Your last paycheck would be reported on the MD tax return and could create a tax liability. Your wife does not work in MD, her income is reported on the MD return and then subtracted out.

Your resident SC return: MD and SC are not reciprocal states so you would need to claim a credit on your SC return for tax liability from MD return.

2. Once the federal is accepted, the states begin the process.  Since you filed electronically and it is taking longer than expected, you can call them at 1-800-638-2937. 

Final thoughts:

• If they reject your return, you can fix it rather than filing amended returns.
• At some point MD and SC will reconcile the credits on the tax returns. This could be anytime from now to the next 3 years.