My wife's W2 has state wages for MA and CT (not equal), but only one state tax withheld in box 17, should I split the withheld for state tax return?

[hinfsynz]

We live in MA and only my wife's company is based in CT. Last year, she got approval from her company to permanently work from home, so her company changed her work state from CT to MA in the middle of year. I think this is why the state wages shown in box 16 for CT is only portion of her whole year's income. What I don't understand is, the state tax withholding in box 17 only shows for one state (I don't know which state it is for, but it appears on the same row as the MA state wages do)

I know the tax liability is prorated based on the percentage of a stage wages in the total taxable income. My question is, when I file the state tax return for CT and MA, do I need to split the withholding for MA and CT based on this percentage as well? For example, let's say her total income is $100,000 for 2021, only $30,000 is for CT while $100,000 for MA according to box 16. The state tax is $6,500 in box 17. I need to file non-resident tax return for CT because there is an income from CT.  Then I will have to file resident tax return for MA by using this tax as a credit because MA and CT are reciprocal states. But for the CT tax, obviously the state tax withholding is not $6,500 because it is for the whole income. From another point of view, our tax liability in CT is only 30,000/100,000 * total taxable income * CT tax rate = 30,000 * 6% = $1,800, which is far less than the total withholding $6,500.

So I'm wondering when I file the CT tax return, should I claim that my CT tax withholding is 30,000/100,000 * 6,500 = 1,800, while MA tax withholding is the rest of that (6,500 - 1,800), then I use $1,800 as the tax credit when I file MA tax return? I feel this is the only way that makes sense to me for both states.

ps. My example doesn't take my income into account, but I don't think it affects the situation I've described above.

Thanks!

[AmyC]

Contact the issuer. The w2 has boxes 15-20 on one row that should all relate to the one state listed in box 15. You may have two rows, one for each state. The employer may have made changes behind the scenes and applied the payment to MA and gotten a refund from CT. You should definitely have MA tax withheld and it should be clearly stated on the w2.

The issuer may have planned to send a second w2 with only state information that you did not receive. We can only guess at what they may have done which is why they issuer needs to be contacted to get a corrected w2 that shows the correct state and the correct state tax paid.

CT does not require a return if no state tax is withheld. Your resident state will tax everything but they will give you a credit for tax paid to CT, if you did indeed have CT tax withheld at the end of the year. Which would be the normal case.

Once you have a corrected w2, enter the information. If you need to do a CT return, do it before your MA return in order for the credit to properly calculate.

[hinfsynz]

@AmyC , thanks! This is very help. I definitely will let my wife contact her W-2 issuer.

Now let's assume they did have CT tax withheld which means I need to file a non-resident tax return for CT, you said my resident state MA will give me a credit for tax paid to my non-resident state CT. How can I do this in TurboTax? I saw suggestions that I should prepare non-resident tax return (CT) first, then resident state (MA). How do I determine the amount of credit given by MA before I prepare MA return?

Best

[SteamTrain]

@hinfsynz 

The tax software will figure that credit amount for you.

1) When you prepare the CT non-resident tax return, your CT tax liability is determined......i.e. the tax assessed before considering any withholding.

2) then when you go thru the MA resident tax return interview, you get to a section that asks about taking a credit for taxes paid to another state...you go in there, and teh CT tax liability should already be in there.   The credit may not be exactly the CT tax liability, MA only allows a credit for up-to what MA would-have charged on the same income, so it depends on the relative tax rates for the two states....but TTX will do the computation.

___________________

But you need to get the Federal section entirely filled in, every scrap, and the W-2 fully correct first.

Also, check the extra copies of your W-2, sometimes each state's specific amounts of wages/withholding are on the extra copies while the main form only shows the total for the states.

[hinfsynz]

@SteamTrain, @AmyC 

Thank you both. We found the issue.

It turns out that my wife falsely filled out a tax exemption code "E" there to request all tax paid to MA before her work location was really adjusted from CT to MA since May last year. The problem is, she doesn't qualify for being exempt from CT tax because her income is from CT before May, which exceeds $24,000 (married joint filing) as required by CT to be tax exempt. That's why we can see some CT wages shown on W2 (nearly half of her whole year income), but we don't see any CT tax withheld because the code "E" she put there instructed her company not to do so! She paid all tax to MA throughout the year!

Now my question becomes, can I apply the portion of tax she paid to MA (our resident state) as a credit to CT (non-resident) tax liability? I notice the instructions in CT Schedule 2 form describes such a case. The amount of credit we can apply looks like below.

     CT source income

-------------------------------------  x (tax paid to MA)

Her total income for 2021

Does this look right? 

[SteamTrain]

I don't think so, but you might need professional advice this year to confirm it.

____________________

Normally, You can only take a credit in your Resident state (MA) for taxes paid to a nonresident state.. CT.

As such, you would

1)  prepare the CT Non-resident tax return first, reporting the proper amount of CT income, and then paying CT what you owed them.

2) then you would prepare the MA Resident tax return, and take a credit for the amount you ended up paying to CT.   

(and if the CT part of the wages actually had MA taxes withheld, then that might result in a good-sized MA refund.  But that depends on whether or not the company did absolutely no withholding for either state on that part of the year's wages)

______________

You can't normally take that kind of credit in the nonresident state tax return, only your resident state, because your resident state can tax all your yearly income.    (unless there's some strange arrangement between CT and MA that I've never heard of)