My employer list wages from working in two states on my W2 that does not match Box 1 wages

[Taxguy]

I moved in August from VA to NC, but remained with my same employer.   On my W2, the sum of wages listed in box 16 for each state exceed the total wages earned in box 1.   It also exceeds the wages listed for SSA / Medicare wages in Boxes 3/5, which is higher due to my 401K contributions.

This is a mismatch on earnings reported.  How do I adjust or fix?   I suspect my withholdings from each state are correct, but since wages are inflated it will result in higher taxes due.

Is this a mistake by my employer?   Why would my state wages be greater than the Box 1 wages disregarding any 401K contributions I made?

[KrisD15]

To clarify, 

are the wages for each state more than the Federal (Box 1) 

OR is only the TOTAL of BOTH state incomes more than the Federal? 

[Taxguy]

The two state wages listed in Box 16 of the two W2s  > wages. income listed for Federal (Box 1).

I was given two W2s to account for the two state income wages.   Only one of the W2 listed the federal wages in Box 1.    I was expecting the total state wage incomes to equal the Federal wages (adjusted for 401K contribution).

[KrisD15 · Accepted solution]

Please verify that the W-2's are all correct and that one is not a CORRECTED W-2C.

If you have a W-2C, don't use the W-2 it is correcting.

Assuming none are W-2C's and assuming the state tax withheld is correct:

To enter into TurboTax, you'll need to enter them as if it is one single W-2 (as long as none of them is a W-2C)

I'm assuming the TOTAL of the state income for Both States is more than the federal AND that not either income for either state is more than the federal. 

For example, Federal is 50,000 and state 1 has 30,000 reported as income and State 2 has 32,000 report, NOT Federal is 50,000 and state 1 is 60,000 and state 2 is 57,000.

IF EITHER STATE SHOWS MORE INCOME THAN THE FEDREAL INCOME I would ask payroll for a corrected W-2 and ask why they reported it that way.

So, as long as the amount of STATE TAX WITHHELD is correct, you can enter the forms.

(I tested and did not get an error when entering two states with income that totaled more than the Federal income) 

YOU can allocate your income to each state, regardless of how payroll did. 

I'm also ASSUMING you worked in VA and still work in VA.

VA taxes the income earned in the state, so doesn't matter where you live. Employees pay tax on whatever wages are earned in VA.

NC taxes the income someone earns while living in North Carolina, so it doesn't matter where you earned it. 

In this situation, you pay tax on ALL the income earned in VA on a Part-Year Resident VA return. 

Next you claim the income you earned AFTER you moved to North Carolina on your Part-Year Resident NC return. 

You will receive a credit on your North Carolina return for the tax you paid to Virginia, so you are not double-taxed on the same income.  

This does not always result in a wash, because North Carolina and Virginia may have different tax rates, credits and so on, but it should be close. 

So what payroll attributed to VA and/or NC doesn't really matter, as long as the amount of state tax that was withheld is correct. 

In reality, from how you describe your situation, they should withhold VA tax on all your income if that is where you work. 

Next year you'll file a NON-Resident VA to claim the income earned while working there and a Resident NC return, 

UNLESS YOU WORK REMOTELY in which case you'll need to continue your question and provide more details.

[Mike9241]

that can be correct. state laws for what's included in wages and what's not differ from state to state and may not match box 1 wages

[Taxguy]

Thanks for your reply.   Just to confirm

1) It is not a CORRECTED W2.

2)  your assumption that "I'm assuming the TOTAL of the state income for Both States is more than the federal AND that not either income for either state is more than the federal" is correct.  For example, Federal is 50,000 and state 1 has 30,000 reported as income and State 2 has 32,000 reported as income.

3) I moved from VA to NC not the other way around

My real question is why would the sum of my reported state incomes 30K and 32 (in your example) on the W2 be greater than the total earned income for Federal.   In my case this is true by over $5K and I seem to be owing a significant amount of state tax in VA.    Is this a typical situation when you work in two states.   I made the same income and did not work in the two states at the same time.  I would expect the sum to be equal to the total federal wages?

[Hal_Al · Accepted solution]

Q.  My real question is why would the sum of my reported state incomes 30K and 32 (in your example) on the W2 be greater than the total earned income for Federal.   

A. You employer has determined that a portion of your income is taxable to both states. For example, there was a period of time when you lived in one state, but worked in the other.  

You report all your income on your resident state return, including the income earned in the other state. Your home state calculates tax on all your income, but gives you a credit, or partial credit, for tax you paid to the other state.

[GK04]

This is my case for 2023 return. I moved from one state to the other. My state wages do not add to the total wages in box1. What am I supposed to do ? 

[Hal_Al]

Q.  My state wages do not add to the total wages in box1. What am I supposed to do?

A. Ideally you ask you employer for a corrected W-2, or at least, an explanation for why it is that way. 

It may depend on which 2 states it is. But, in general, here's what happens: Your federal AGI transfers to each state return.  The state interview will ask you to allocate your wages to each state. If there  is any 

duplicate taxation, your current resident state gives you a credit for the "extra" tax paid to the first state. 

[GK04]

the states are maryland and iowa in my case. i have written to my employer for checking this. 

about the allocation: yes the wages are allocated on my W2 form to MD and IA, but the total of the state wages is more than the federal wage reported in box1 by about 4k

i am also trying to get a response from the person of the original post to see how they resolved this  

[GK04]

my employer issues me a new corrected W2-C as this was an error.  

[ytischler]

In my daughter's case, 16 (a sum of two states) bigger than 1 by 6K.  So if I use the figures in 16, I feel like she would be over taxed.    I get that she should ask for a corrected w2.  But would it be ok to split the 1 into the two states wages based on the split% in 16?  In other words, if the state A:B split is 60:40 based the total of 16, can I apply the same 60:40 to the 1 and proceed with the two states tax returns that way?  

[TomD8]

"can I apply the same 60:40 to the 1 and proceed with the two states tax returns that way?"  

No - because her State of Residence can tax 100% of her income, regardless of where she earned it.  It depends on the two states involved, but normally the home state will allow a credit on its tax return for the taxes paid to a non-resident state.

[ytischler]

KrisD15 says:  YOU can allocate your income to each state, regardless of how payroll did. 

In other words, for example, if the # in 1 is 120K and the #'s in 15 are 80K in one state and 50K for the other state, and the employee moved at the beginning of Sept to the second state,  can I allocate 80K for the first state and 40K for the other state and enter those as state wages??  Sept 1~Dec 31 isn't necessarily 4/12 of the full year, but you get my point.  

[KeshaH]

It depends on the states - in some states the amount in box 16 is bigger than the amount in box 1 for legitimate reasons. Usually it's because the state doesn't exempt certain items from income (for example, HSA contributions in CA and NJ) like the federal does.

However, if that's not the case for your daughter then yes, you can allocate the income based on where she‌ lived at the time it was earned. That can be based on time spent in each state, if she earned her income prorata over the year, or it can be based on her paystubs.

@ytischler