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Neb39
Level 1

Multistate Filing: Work in IL, Lived in IA/IL: Billed by Iowa Dept. of Revenue

Hello!

 

I worked in WA the first qtr of the year (no state tax) then moved to IL to start work in IL. I then moved to IA and still worked in IL for the last half of the year. I kept all my withholdings in IL the entire time. I used the Turbo Tax multi state filing tool at which point I had to send some money to IL by check in the mail. No big deal, until I received a quite large bill for taxes by the Iowa Department of Revenue. Shouldn't the software have indicated IA a large sum of money? Where is a good place to start to address this?

1 Best answer

Accepted Solutions
SteamTrain
Level 15

Multistate Filing: Work in IL, Lived in IA/IL: Billed by Iowa Dept. of Revenue

Ahhh.....a lot depends on how you prepared your state tax returns for 2020  (assuming you a re talking about 2020 taxes).  Your moving around so much created a situation that you probably should have used a local tax professional to prepare and file your state tax returns for 2020.   You probably  are in a situation where you now need to use a local tax pro to amend your IL and IA state tax returns to figure out the proper amounts of who gets what for taxes.....but that's a personal evaluation based on what limited info you've provided .....and Part-year state tax returns are a special challenge when dealing with just two states...but you have a third one (IL) in between WA and IA  Navigating it now, yourself in the tax software would require a certain amount of expertise that is normally not readily available to occasional tax software users.

_________________________

But here's what I'm talking about, and admittedly just my take on your situation.....from what you said you started 2021 as a WA resident...first ~3mos in WA , then temporarily ~3mos in IL and working in IL, then  moved to IA for~6mos  (and still living there now) and still working in IL.

 

You travelled from your former residence/domicile in WA, to IL for a just short time and remained/worked there for (3 mo? or so)...then moved more permanently to IA.  Presuming you didn't actually become a permanent IL resident, you should have filed your IL taxes as a non-resident, and in IA as part-year IA Resident  ("moving" from WA to IA as-of the date you became an IA resident....you were only in IL temporarily and did not really take up IL residency as you did not remain there.).   

 

The state tax complexity comes in as a mess since IA and IL have a reciprocal tax agreement, whereby an IA resident working in IL will only owe IA taxes on that IL income, and IL has no claim to taxing it after you physically moved to IA.....so you worked in IL for a short time, technically as a non-resident (and as a WA resident) before you actually moved (permanently) to IA.  The income you received in IL...before you moved to IA, should have been reported by you, on the IL nonresident tax return as IL income and taxed by IL.   BUT, after you moved to IA (and continued working in IL)...you "should have" informed the employer of that move and had IA taxes started to be withheld for the remaining wages for ~6mos of the year, since that was now considered IA income....due the the tax agreement between IL and IA.  As such, when you filed your IL non-resident tax return, you should have indicated only the income  while you lived in IL there as being IL income....and the remainder as IA income on the IA part-year tax return.  IF you had IL taxes withheld for the entire time....then you should have indicated only the smaller part of wages as IL income and received an IL refund for the excess withholding (and probably didn't owe IL anything more)....and paid IA part-year taxes for those same final ~6mos of wages, and any other income you may have had for the last part of the year. ....which IA is now billing your for.  (With no state taxes, WA has little part in any of this...only as far as when you are considered as having moved from there. Any income you had in WA may come into both the IA and IL tax returns, but shouldn't get taxed if prepared properly.)

 

How to amend to correct all that now is virtually impossible to deal with in a forum of this type.....you probably need to take copies of all your filed tax forms in to a local tax pro to work it all out for you. Certainly, once an actual tax pro finds out the entire set of details about your situation  (including some you may not have stated yet), and exactly what was on the state tax returns you had already filed previously, they may decide to handle it somewhat differently from the broad details I've suggested above....but that would be up to their professional opinion & decision.

__________________

IF you are still working in IL and living in IA, make sure your employer knows to stop withholding IL taxes and start IA withholding.   If in this situation earlier in 2021, and IL taxes were withheld for the first months of 2021.....you may again have to file an IL nonresident tax return for 2021 to get all of the IL withholding back....the employer can't just re-assign it to IA after the fact, since most has (probably) already been sent in to IL.

 

1)  IL form to stop IL withholding for an IA resident  (  IL-W-5-NR, Employee’s Statement of Nonresidence in Illinois  )

2)  IA withholding form  (  2021 IA W-4 (44109) (iowa.gov)  )

_______________

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

View solution in original post

2 Replies
SteamTrain
Level 15

Multistate Filing: Work in IL, Lived in IA/IL: Billed by Iowa Dept. of Revenue

Ahhh.....a lot depends on how you prepared your state tax returns for 2020  (assuming you a re talking about 2020 taxes).  Your moving around so much created a situation that you probably should have used a local tax professional to prepare and file your state tax returns for 2020.   You probably  are in a situation where you now need to use a local tax pro to amend your IL and IA state tax returns to figure out the proper amounts of who gets what for taxes.....but that's a personal evaluation based on what limited info you've provided .....and Part-year state tax returns are a special challenge when dealing with just two states...but you have a third one (IL) in between WA and IA  Navigating it now, yourself in the tax software would require a certain amount of expertise that is normally not readily available to occasional tax software users.

_________________________

But here's what I'm talking about, and admittedly just my take on your situation.....from what you said you started 2021 as a WA resident...first ~3mos in WA , then temporarily ~3mos in IL and working in IL, then  moved to IA for~6mos  (and still living there now) and still working in IL.

 

You travelled from your former residence/domicile in WA, to IL for a just short time and remained/worked there for (3 mo? or so)...then moved more permanently to IA.  Presuming you didn't actually become a permanent IL resident, you should have filed your IL taxes as a non-resident, and in IA as part-year IA Resident  ("moving" from WA to IA as-of the date you became an IA resident....you were only in IL temporarily and did not really take up IL residency as you did not remain there.).   

 

The state tax complexity comes in as a mess since IA and IL have a reciprocal tax agreement, whereby an IA resident working in IL will only owe IA taxes on that IL income, and IL has no claim to taxing it after you physically moved to IA.....so you worked in IL for a short time, technically as a non-resident (and as a WA resident) before you actually moved (permanently) to IA.  The income you received in IL...before you moved to IA, should have been reported by you, on the IL nonresident tax return as IL income and taxed by IL.   BUT, after you moved to IA (and continued working in IL)...you "should have" informed the employer of that move and had IA taxes started to be withheld for the remaining wages for ~6mos of the year, since that was now considered IA income....due the the tax agreement between IL and IA.  As such, when you filed your IL non-resident tax return, you should have indicated only the income  while you lived in IL there as being IL income....and the remainder as IA income on the IA part-year tax return.  IF you had IL taxes withheld for the entire time....then you should have indicated only the smaller part of wages as IL income and received an IL refund for the excess withholding (and probably didn't owe IL anything more)....and paid IA part-year taxes for those same final ~6mos of wages, and any other income you may have had for the last part of the year. ....which IA is now billing your for.  (With no state taxes, WA has little part in any of this...only as far as when you are considered as having moved from there. Any income you had in WA may come into both the IA and IL tax returns, but shouldn't get taxed if prepared properly.)

 

How to amend to correct all that now is virtually impossible to deal with in a forum of this type.....you probably need to take copies of all your filed tax forms in to a local tax pro to work it all out for you. Certainly, once an actual tax pro finds out the entire set of details about your situation  (including some you may not have stated yet), and exactly what was on the state tax returns you had already filed previously, they may decide to handle it somewhat differently from the broad details I've suggested above....but that would be up to their professional opinion & decision.

__________________

IF you are still working in IL and living in IA, make sure your employer knows to stop withholding IL taxes and start IA withholding.   If in this situation earlier in 2021, and IL taxes were withheld for the first months of 2021.....you may again have to file an IL nonresident tax return for 2021 to get all of the IL withholding back....the employer can't just re-assign it to IA after the fact, since most has (probably) already been sent in to IL.

 

1)  IL form to stop IL withholding for an IA resident  (  IL-W-5-NR, Employee’s Statement of Nonresidence in Illinois  )

2)  IA withholding form  (  2021 IA W-4 (44109) (iowa.gov)  )

_______________

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
Neb39
Level 1

Multistate Filing: Work in IL, Lived in IA/IL: Billed by Iowa Dept. of Revenue

Much appreciate the spelled out response SteamTrain. I will definitely get in touch with a local tax expert on this. Was not a good year for me to start doing my own taxes with all the moving pieces.

 

Huge thanks again for all your necessary information!

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