I moved to Pennsylvania from Ohio but continued to work remotely for the Ohio company for about a month. The company continued to withhold Ohio taxes instead of Pennsylvania taxes.
I am filing both Pennsylvania and Ohio tax returns. Because Ohio and Pennsylvania are reciprocal states, the Pennsylvania one said to request a refund from Ohio for the amount I earned during that one month. I believe I answered the questions correctly, but Turbo Tax says I have an issue with my Ohio return. It says, "Schedule A: Line 12 should be blank. To qualify for this deduction, you must be a resident of Indiana, Kentucky, Michigan, Pennsylvania or West Virginia." (which I am)
Line 12 is "employee compensation earned in Ohio by residents of neighboring states." I put in the amount that I earned in the month I worked from Pennsylvania for the Ohio company. Why does it want me to put a zero? How do I get my refund of the taxes withheld?
You will need to file a part-year return for Pennsylvania and part-year return for Ohio. You will have to allocate your wages based on the time you earned the wages in Ohio.
For example, if you moved to Pennsylvania on 9/30/2020, and worked for the Ohio employer (in Pennsylvania) until 10/31/2020, then you would multiply your wages from your Ohio employer by 9/10. If you earned $50,000 during that time period, then $45,000 should be on your Ohio return and $5,000 should be on your Pennsylvania return.
In two states with reciprocal agreements, you can never get a credit of tax paid to another state.
Please follow the steps below:
- Click Edit next to your part-year resident Ohio return.
- Continue through your return until you get to the Income Allocation screens.
- Enter the amount in the boxes under the column Ohio Income for your allocation. I have attached a picture below for additional guidance.
- Click Edit next to your part-year Pennsylvania return.
- On the page Verify This Income, the amount of your Pennsylvania income ($5,000) should be listed. If the amount is not correct, put a checkmark next to I need to make an adjustment to the taxable amount of this income.
[Edited 4/5/21 l 3:07PM PST]
@LenaH -- I believe the Ohio rule you cited refers only to municipal income tax, not to state income tax. Chapter 718 of the Ohio Revised Code has to do with municipal income taxes.
I believe the taxpayer's W-2 wages/salary after becoming a resident of PA are not subject to OH state income tax, due to the OH-PA reciprocity agreement.