Multiple State Filings

[wsneifert]

For my wife and I, 2021 is complicated regarding how many states we need to file in.  I purchased the Turbotax Premier desktop package plus 3 additional state filings with the understanding that the product would give us clear guidance on the filing process, but I’m not so sure about that.  To summarize my situation:

• My wife and I started 2021 living in DE; then on 6/15/21 we sold our DE home and moved to NJ where we rent a home; we are married filing jointly
• I started 2021 working for a DE based firm; on 3/29/21, I changed to working for a NJ based firm; for the DE firm, no NJ tax was withheld (which I believe is correct since I lived in DE while working there); however, my NJ based firm only reported state wages and withheld state tax for NJ, but I lived and worked remotely in DE for about 2.5 months with them; I requested my employer provide me a corrected W2 showing my proper DE income, but they said they cannot because they don’t have a legal entity in DE
• From 1/1-1/6 my wife was not employed; she started employment on 1/7/2021 and worked from home 100% because her office in Philadelphia, PA was closed due to COVID, and remained as such for her entire time in 2021; On 11/1/2021 my wife transferred offices from Philadelphia to New York City, NY, but continued to work from home 100% out of convenience offered by employer due to COVID
• My wife’s employer reported income and taxes for DE, PA, NJ, NY, and Philadelphia

Questions:

1. Where do we need to file tax returns?  I see it is possible for DE, PA, NJ, NY, Philadelphia, and New York City.  But considering my wife worked 100% remotely in 2021, perhaps some locations we don’t owe tax, but I don’t see any such option for that in Turbotax ;if we need to file in cities Philadelphia & New York City, I don't see such capability in the Turbotax Premier product based on the questions thus far
2. Which states/cities can I deduct from others?  And do I deduct the taxes that were withheld from our pay, or the tax basis we file, i.e., what Turbotax calculates as Tax required
3. Do I need to report DE income from my NJ based employer, who didn’t indicate DE wages on my W2 (because I lived and worked remotely in DE with this firm part of the year)?  If yes, appreciate any guidance on calculating DE wages and how to input into Turbotax
4. My wife’s employer revised her DE state wages; is there a box or something to indicate the W2 is revised?
5. Turbotax gives us an error/warning concerning our days worked outside NY can’t equal the total days worked; my understanding is the total days worked includes those worked remotely, so considering my wife never worked in NY they are equal and the error seems inappropriate; please comment
6. NY business income allocation – we aren’t self employed, do we need to complete this?

I know these are a lot of questions, but any general guidance on these topics and filing would be appreciated.

[ErnieS0]

You will need to file tax returns in states where you lived and/or worked:

1. A part-year Delaware income tax return, because you were part-year DE residents
2. A part-year New Jersey tax return because you lived and worked in NJ
3. A New York nonresident return because your wife worked remotely for a NY-based company.
   
   New York follows the convenience of the employer rule. If your wife is considered NY-based, then she is subject to NY state tax.
   
   Your wife's employer should have withheld Philadelphia wage tax so you do not have to file a Philly return. Employees who are working from home due to a business closure are considered to be working in Philly.
   
   New York City does not tax non-residents, so there is no NYC tax due.
    
4. You can claim an other state tax credit on your DE return for tax paid to NJ while you were a resident of DE. You can claim a credit for tax paid to Philadelphia and New York state on the New Jersey return. You will have to manually enter the NJ amount on the DE return and Philly amounts on the NJ return. TurboTax should calculate the NY tax credit on the NJ return if you prepare NY before NJ.
5. Yes. Income earned from your NJ employer while living in DE is taxable to DE.
6. Yes. If your wife received a corrected W-2c you should use those amounts and check the box W-2 was correct by my employer (Form W-2c) on Let's check for uncommon situations
7. You do not need to allocate your wife's income. You should say it's 100% NY income
8. You do not need to complete the NY business allocation

[wsneifert]

@ErnieS0,

Thank you very much for the detailed response.  I appreciate your guidance, it confirms a lot of my expectations.  A few follow-up questions for you:

• You say allocate 100% of my wife’s income to NY, but that is perplexing; NY state wages are listed on the W2 as 100% of her federal wages, but she only worked there 2 of 12 months…shouldn’t the wage be allocated by days accordingly? Why should she pay tax to NY on income that has no residency or office location there (i.e., when she lived in NJ/DE and worked in PA)
• I also need to file a PA return, right?  This is because my wife’s office was there for 10 months in 2021
• What is my DE resident status?  I believe it should be part year non-resident because I had non-DE source income, that is based on TurboTax’s recommendation; it feels odd because I did reside in DE, but that is in the DE residency notes of turbotax
• The states that I credit to other states is based on my filing sequence, right?  I believe I need to file my nonresident returns first, and file in order of how long I had source income there.  That seems to be how Turbotax seems to have set it up (NY worked 2 months, PA worked 10 months, DE lived 5.5 months, NJ lived 6.5 months - this is the order prepared, I'd add a snapshot but not sure how); my point is if I file in DE first as below, it cannot get a credit for tax paid to NJ, right?  And is this credit the amount withheld from my paychecks (reported on W2) or is it the amount I calculate in the tax return?

Thank you!

wsneifert

[ErnieS0]

Yes. You have to split the New York wages. NY requires employers to report total wages in W-2 box 16. You can allocate the NY portion in the New York section of TurboTax.

The New York section will ask you whether all your income was earned in NY.

1. On New York Income Allocation, say No to Were all of your wages and/or your self-employment income earned in New York State?
2. Edit Your W-2 on Your Form W-2 Summary
3. Choose Allocate by Number or Days or Allocate by Percentage on Allocate Wages to New York (percentage is usually the easier calculation)

Pennsylvania

You will need a nonresident PA return. PA kept in place pre-Covid-19 work arrangements so if your wife worked in Philly pre-pandemic then she is still considered a PA employee while working from home due to the outbreak.

PA and NJ have reciprocity so your PA income would be January to June. After you moved to NJ, the income would be sourced to NJ. There would be no NJ withholding because you can claim a credit for Philadelphia Wage Tax against those earnings.

Delaware

You are a part-year Delaware resident. DE allows you to file two ways — as a part-year resident and a part-year nonresident. Filing as a resident pulls in all your income. Generally filing as a nonresident is better. You can switch the button and see if it makes a difference and choose the better option.

Tax Credits

• Delaware. Credit for NJ paid. NJ had temporary Covid-19 rules until September 30 that required employers to source income in accordance with the employer’s jurisdiction so you would be a "NJ employee" and can claim a credit on double taxed income, This is better because it matches your W-2.
• Pennsylvania. No tax credits. This is a nonresident return.
• New Jersey. Credit for Philly and New York tax
• New York. No credit. Nonresident return.

[wsneifert]

@ErnieS0 , thank you again for your detailed responses.

Let's take a moment to focus on Philadelphia & PA.  You wrote "You will need a nonresident PA return. PA kept in place pre-Covid-19 work arrangements so if your wife worked in Philly pre-pandemic then she is still considered a PA employee while working from home due to the outbreak."  My wife never worked in Philly pre-pandemic, so what is the impact of that?  

My wife never physically reported to work in Philly or PA, in any tax year.  Her employment start date was delayed from May 2020 to Jan 7, 2021 due to the pandemic, but her office was considered to be in Philly and her employer reported income and withheld for both Philly & PA.  When she started her employment in January 2021 her office didn't allow any employees to enter due to COVID, so she worked from home 100%  Around June 2021, they opened it to essential personnel but she wasn't included in that group either, so still required to work from home.  Her employer may have opened it for 1-2 months to employees in fall time (need to check), but for sure for most of the year she couldn't report to the office.  On 11/1/21 she transferred to NYC, and that I am more clear on as it was always a convenience for her to work from home, i.e., the office was open.

Considering the above, is there any impact to the source income we report to Philly & PA?  Thank you!

[LenaH]

Yes, there is an impact to the source income you report to Philadelphia and Pennsylvania.

From the date of hire in January 2021 to June 30, 2021, the income source would be Pennsylvania. When determining the taxability of income for telecommuters, the Pennsylvania Department of Revenue looks to the employment agreement between the employee and their company. If Covid-19 did not force the office to close, your wife would have worked in Pennsylvania. Per the State, if an employee is working from home due to the COVID-19 pandemic, they do not consider that as a change to the sourcing of the employee’s compensation.

However, per the State of Pennsylvania, as of July 1, 2021, a non-resident employee who is required to telework full-time from home in another state should treat his compensation as non-Pennsylvania source income even if his employer is located in Pennsylvania. 

Therefore, you have to calculate sourced income reportable on your Pennsylvania return from the date of hire through June 30, 2021, and from July 1, 2021 through the day of transfer. The income between July 1, 2021 until the date of transfer, would be reportable to the state from which she telecommuted.  

For more information, please see Telework Guidance.

@wsneifert

[wsneifert]

@LenaH thank you for the response, guidance, and link to the relevant PA guidance.

For my case, my wife moved residence from DE to NJ on 6/15/21, so I believe due to reciprocity between PA & NJ, after that date no additional PA income was reported or tax withheld.  Assuming her employer allocated the income and tax withheld appropriately then no change will be made to PA source income.

Can you provide guidance concerning the Philadelphia source income for her situation?  Should her income be sourced to Philly while working remotely in DE & NJ?

Thank you!

[ErnieS0]

Your wife's income would always be sourced to your state of residence. If she had Philadelphia wage tax withheld on days worked outside Philadelphia, she can file a wage tax refund petition which must be signed by her employer.

Here is the City of Philadelphia's Wage Tax policy guidance for non-resident employees.

[wsneifert]

@ErnieS0 , thanks for the advice and clear guidance concerning Philadelphia.  I owe money to DE & NY for 2021, but would like to delay when I file to them as I sort out these other returns like Philadelphia & PA.  How can I make a payment to them without filing a return so I minimize any penalty I owe?  

@ErnieS0  & @LenaH , when I read the guidance on PA teleworking related to COVID, I'm actually still not clear.  To quote PA:

"In summary, if an employee is working from home temporarily due to the COVID-19 pandemic, the department does not consider that as a change to the sourcing of the employee’s compensation. For non-residents who were working in Pennsylvania before the pandemic, their compensation would remain Pennsylvania sourced income for all tax purposes, including PA-40 reporting, employer withholding and three-factor business income apportionment purposes for S Corporations, partnerships and individuals."

https://www.revenue.pa.gov/COVID19/Telework/Pages/Telework-During-COVID19.aspx

The first sentence I could agree with @LenaH statement.  But my situation is in direct conflict with the 2nd sentence, implying that my income may not be PA source income. @LenaH , is there some reference you have supporting your statement "When determining the taxability of income for telecommuters, the Pennsylvania Department of Revenue looks to the employment agreement between the employee and their company."

Thank you.

[ErnieS0 · Accepted solution]

You cannot pre-pay taxes owed without filing an extension at this point, so file extensions with Delaware and New York and make an extension payment. There are sections with the state areas of TurboTax to file extensions.

• To pay online with New York: Make a personal income tax return payment online
• To pay online with Delaware: Payment
• Or you can pay by mail

Pennsylvania kept in place pre-pandemic arrangements for nonresidents who previously commuted to the office but were forced to work from home, meaning they were still considered to be working in PA until June 30. 

After that date, income is not considered PA-income if the employee was required to work from home. If the employee worked from home by choice, the income would be PA income under the "convenience of the employer" rule.

Your wife can check with her payroll department.

​Telework Guidance