Multiple States - incorrect W2 information

[km1902]

I moved from Oregon to Hawaii in end of June 2021. I changed my residency to Hawaii and continue working for the same company as before. Unfortunately my employer did not switch my state withholding until October. Now while I'm working on my state taxes I assume I need to adjust the reported income. I calculated the correct income for each state and adjusted the state entries reported by W2 to proper, self calculated amounts. I've done this on both state returns. One value become lower while another one increased.

My Oregon return guides me through "Credit Tax Paid to Another State". It ends up being "$0" but I'm not sure if this is correct? In "Income Taxed by Hawaii" section I enter the following:

• Double-Taxed Income: 0
• Total Tax Paid to Hawaii: <value from my W2 for Hawaii>
• Total Income on Your Hawaii Return: <my self calculated adjusted income while in Hawaii>
  • I assume this needs to the same amount I am reporting on my HI return, but it is not the same amount originally reported by my W2.
  • Am I right here?

My Hawaii tax return asks me for "Wages and Salaries". I entered the self calculated amount adjusted to follow my residency status but different from the W2 reporting. Again, as I said before my employer start withholding my HI taxes in October. Now the most confusing part, the Hawaii State "Federal Schedule A - Taxes Paid" section. There are two values here which correspond to the W2 amounts which may have to be adjusted but I really do not follow this requirement. Here are the questions:

"Taxes on Out-of-State Income Earned While a Nonresident (such as tax withheld on an out-of-state job), and Real Property Taxes Paid on Property Located Out of State While a Hawaii Nonresident"

The default value here is the Hawaii "State Income Tax" as reported on W2. Should this be adjusted?

"Taxes on Hawaii Income, or on Income Earned While a Hawaii Resident, and Real Property Taxes Paid on Property Located in Hawaii or Paid on Property Located Out-of-State While You Were a Hawaii Resident"

The default value here is the Oregon "State Income Tax" as reported on W2. Should this be adjusted?

Next Turbo Tax leads me to "Other State Tax Credit Summary". Other State in this case is Oregon. For starters it is $0 but I go into it and provide details which ends up giving me a "credit amount".  Is this correct? 

In "Income Taxed by Oregon" section I enter the following:

• Income Earned in Oregon, and Subject to Hawaii Tax: <my self calculated adjusted income while in Oregon>
  • I assume this needs to the same amount I am reporting on my OR return, but it is not the same amount originally reported by my W2.
  • Am I right here?
• Tax Paid to Oregon: <amount originally reported on W2 for Oregon State>
  • Am I right here?

Here is another confusing section :-(, "State and Local Income Tax Deduction". The sections says:

"Hawaii requires you to subtract the state and local income taxes paid to this other state from your Hawaii itemized deductions amount if you are also claiming a tax credit for this state.

Your federal return included <$xxxx>  for ALL of your state and local income taxes paid.

For the state that you claimed a credit for taxes paid, subtract that state's income tax amount that you claimed as an itemized deduction on your federal return."

The amount defaulted here is my TOTAL (Hawaii and Oregon) State tax amount. Again I assume it needs to be adjusted by I'm not really sure about what is it asking for. Any ideas?

I know this was long post but the situation is quite complex and I wanted to explain it in details. I wonder if some of the experts out here can help me to resolve this puzzle. Thank You.

[HelenC12]

@km1902  From the information above, it appears you adjusted the state amounts on your W-2, when you entered your W-2. If that's the case, you need to remove those amounts and enter your W-2 exactly as you see it. You'll be able to "allocate" the income to each state accordingly as you go through the onscreen interview. 

• When an employer withholds the incorrect state income tax and you're trying to get the "tax paid to other state" to be reflected correctly on your income tax return, please see the following:  How do I file a part-year state return?

Important: If you also see a nonresident state return in the State section, complete that return before you work on your part-year return(s) to ensure your tax credits are calculated correctly.

Once you complete the proper entries for OR and HI, some of the questions you posted won't be an issue any more. If you still have some questions after completing the two states, please post them and we'll be happy to try and answer them.

Related Information:

• How do I allocate (split) income for a part-year state return?
• How do I file if I moved to a different state last year?
• How does TurboTax calculate taxes on part-year returns?
• How do I file a nonresident state return?

[Edited 02/14/22|5:43 am PST]

[km1902]

Helen, thank you for your reply. I probably did not explain it clearly. I used the exact W2 amounts when entering my W2 information, however I recalculated those amounts while providing the allocation for both states. So I believe I did exactly what you suggesting. I also read/followed the guides and links you provided, however, they do not clarify the some of the issues from my original post.

Also another concern. The HI state tax tells me to attach the OR state tax to it as I'm claiming the credit. Will Turbo Tax handle this or do I have to do it manually. I was planning to eFile all of my returns.

[TomD8]

File a part-year resident return for each state.  Enter your W-2 as is.  Allocate your income prior to becoming an HI resident to OR.  Allocate the remainder to HI.

Since OR does not tax income earned remotely by a non-resident, you have no double-taxed income, and you will obtain a refund from OR on any excess OR taxes withheld.  

The income you earned after becoming an HI resident is fully taxed by HI, and you (probably) were under-withheld for HI.  If so, you will have some HI taxes due.

Since there is no double-taxed income, the "other state credit" issue does not come into play at all.

[km1902]

So if I understand correctly what you say the "other state credit" applies ONLY if there is double-taxed income situation. Means I just should not edit it at all and leave it at $0?

[TomD8]

Q:  "So if I understand correctly what you say the "other state credit" applies ONLY if there is double-taxed income situation"

A:  That's correct.  "Other state credits" apply only when you have income taxed by both your resident state and a second, non-resident state.   In your case, since OR no longer taxes your income after you become a resident of HI and assuming all your work from that point on is performed remotely from a HI location, you have no double-taxed income.  

In the Personal Info section of TT, you should enter HI as your State of Residence and you should indicate that you also lived in OR.  You should indicate that you had no "Other State Income."  You became a HI resident for tax purposes when you began living there with the intent of making it your primary, permanent residence.  Then you should allocate your income between the two states according to your dates of residence.  This can be done within the TT program, as @HelenC12 pointed out.