I live in NJ. A former employer I worked for in NY in 2018/2019 is hq'ed in PA. I have never provided services for them in PA -- I have only provided services for them in NY and since the pandemic, the services have been provided in my home in NJ (some pre pandemic services were in NJ, but I found it easier to just allocate all to NY). They used to pay me as a 1099, but after April 2020, I've been paid as a w2 employee (I presume because of a PPP loan) until the end of my employment with them.
They deducted PA taxes when I've been a w2 employee, but obviously no taxes were taken out when I was 1099.
How do I file this part of my taxes?
Another piece of the puzzle: they paid me via direct check when 1099 in 2020 (covered work from December 2019 to February 2020 because I sporadically invoiced them), but used a payroll service based in NJ when w2. I obviously have not received said 1099 or w2 yet, but I'm curious if people have received a 1099 and a w2 from the same company in the same year for the exact same work. (Nothing in our arrangement changed other than me changing from being paid as 1099 to w2. I still did the same type of work. I don't even know if they will do a 1099 for me for tax year 2020 because the sum of payments for that first part of the year was under $600.)
You have two different situations, so we will address each separately.
How do I file my state tax returns? It is really unfortunate that the company withheld PA tax. PA and NJ have reciprocity, so even if this is PA income, you don't pay PA tax on it. However, in order to get PA tax refunded to you, you will need to file a PA nonresident return with $0 income. TurboTax will help you to do this in the PA state return.
Since NJ is your home (resident) state, all of your income will be taxable there.
The wild card is NY. If you have previously filed NY nonresident returns for work performed in NY, and you physically worked in NY this year, you will continue to pay tax on physical work performed in NY. What is absolutely unknown is what NY is going to argue about the telecommuting income. NY is the most aggressive state in considering telework for a NY-based (and located) company as NY income. Because of your specific parameters, I hesitate to guess and certainly do not assume what NY's position will be. Here is why I think it's a bit complicated:
As you state, your company was paying you as an independent contractor and then changed to paying you as an employee. Obviously, they did not register your pay as taxable in NY. They could be right, but it's no guarantee that they are. And if the telecommuting income in question was performed on behalf of the NY-based location, NY likely (again, not going to assume here) will consider this income to also be taxable to NY state as well.
You may need to investigate a little further with the company to make certain. They should be able to tell you if the work you performed remotely is attributable to NY or not. If it is, then the safe route is to report it as nonresident income to New York and pay the tax on it. New Jersey will give you a credit for the tax you pay to New York instead of to New Jersey.
How do I file if they previously paid me as a contractor and switched to a W-2 employee? This also happens with some companies. However, if you are treated as an employee for part of the year, you can file a form (available in TurboTax), that requests to treat you as an employee the entire year. Here is a link with more information:
If you do receive Form 1099-NEC (new this year instead of Form 1099-MISC) for your contract work, you may choose to use Form 8919 so that the "independent contractor" portion of the income is treated as wages. You would be responsible for 1/2 of the Social Security/Medicare due on that income, and your company the other half. (If under $600, you might not receive the Form, but you still should claim the income. You might choose not to worry about Form 8919, however, if the amount of money involved is that little).
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First off, thanks so much for taking the time to write a lengthy reply to my many questions.
I have, since writing the post, received my W2 from the PA company. They have not sent a 1099.
I have also received a copy of Turbo Tax for this year. I can see being prompted for additional information and am now curious which form do I list when they ask what the additional information is referring to. Is it the PA-40 that I file with Pennsylvania or one of the two forms I apparently need to submit with the return (which are a copy of the W2 and a copy of my 1040-NJ?
Because of the need to submit these documents with the PA return, can I still file electronically or does PA need to be mailed in?
You make mention that NY is the most aggressive when it comes to telecommute income. I am well aware of this. That is partly why I want to continue allocating the income all to NY. I have read their guidance that states even during the pandemic, non residents working for NY companies shall be taxed by NY for this income.
When I wrote to PA Dept of Revenue about this situation, the reply in part included a bit about amended returns, but I don't think this qualifies for me? I didn't file in PA for the last two years because as I said previously, the work I did for them was based out of NY (and most of it performed in that state, the part that was not was in NJ) even though the corporation is registered in PA. I feel like it would open a whole can of worms if I were to file that Form 8819. The amount of income in 2020 as a contractor really didn't come to much. 2018 was the year I earned the most with them. Maybe I should have done that form in that year, but doing so would probably have a ripple effect onto my 2019 taxes and then 2020 taxes. Such a mess..
As @DanielV01 mentioned, New Jersey and Pennsylvania have a reciprocal agreement, so no PA income tax should have been withheld on your W-2, regardless of your New York situation.
If PA tax was withheld in error, you will have to file a non-resident PA income tax return (PA-40) to get a full refund of your withholding. To do this,
- Go to the screen Compensation Summary and click Edit,
- On Verify Income, check Entire amount of this income is not taxable in PA.
This will create a non-resident PA tax return with $0 wages.
Mail your PA return to Harrisburg along with your W-2 and a copy of your New Jersey return, showing all the income was properly reported to PA. You can e-file, but if so, you may receive a letter from PA asking why your reported $0.
Here are PA’s instructions:
If you are a resident of a reciprocal agreement state working or performing services in Pennsylvania and your employer withheld Pennsylvania income tax, you may request a refund of the Pennsylvania tax. You report zero taxable compensation on Line 1a and the Pennsylvania tax withheld on Line 13. Submit federal Form W–2 or a photocopy and a copy of the resident income tax return that you filed/will file with your resident state. Also, submit a statement explaining that you are a resident of a reciprocal agreement state.
Also complete REV-419, Employee’s Nonwithholding Application Certificate, and send it to your employer to discontinue PA withholding.
Prior years. Do not file any prior year PA forms. A NJ resident working in NY does not have any PA income and should not file a PA return.
Thanks @ErnieS0 for chiming in. When I first saw they were withholding PA tax upon converting me to W2, I specifically asked if I could fill out Rev 419, but my request was denied. I said "I was wondering if it was possible to withhold NJ taxes rather than PA taxes since I am not working in PA, but in NJ. I discovered there is a form I can fill out so this can happen (called REV 419), but the employer needs to agree to it." And they said "Our payroll is not set up to deduct NJ taxes, so we can't do this." I guess I didn't mention the whole reciprocal thing, but the point is I asked about Rev 419 and they said no.
Regardless, I am not working for them any longer, so hopefully it's the last return I have to file in PA for this particular employer.
I will not file prior year forms. No need to open that can of worms.
Hello @Allthethings. I had a similar experience with a previous employer who also refused to withhold PA tax (I was a PA resident working in NJ) even though several employees were in the same situation.
Good to hear your are no longer working for them.
Hey @ErnieS0 thanks for replying a while back.
Just curious, when you say I should send PA my w2, do you mean I just need to send in the W2 I got from the PA company or all my W2s for the year? I have 5 and my spouse has 1 for tax year 2020.
PA wants all the W-2s and PA-40 Form W-2S (which TurboTax will prepare) if
- The PA compensation entered on Line 1a of the PA-40, Personal Income Tax Return, is not the same as Box 16 on Form W-2 (when the amount of Pennsylvania compensation or withholding is believed to be incorrect).
- The employer provided a handwritten Form W-2.
- The employer reported an incorrect amount on Form W2. A written statement from the employer must also be included.
- The employer withheld PA income tax from wages at a rate that is more than the current year’s tax rate of 3.07 percent.
- PA income tax was withheld by an employer for a resident of a reciprocal compensation agreement state.
- The Medicare wages in Box 5 on Form W-2 are greater than PA wages in Box 16. In this case, complete and include the PA-40 W-2 Reconciliation Worksheet with the PA-40, Personal Income Tax Return.
- A PA resident is working in another state or country and did not have PA income tax withheld by the employer.
- A distribution from a nonqualified deferred compensation plan is included in Box 1 of Form W-2.
- Form W-2 shows income earned or tax withheld for another state.
One last question on this... I've printed out what turbotax generated for me to file with PA, but on the Gross Compensation Sheet (which I presume will act as my Pennsylvania W-2S), it has double my 2020 income. I presume this is because it lists my income once for NY and once for NJ. (Well for the PA based employer, it is NY and PA.)
My question is is it okay that I only include one copy of these w2s or is it better that I include two? Only two of my employers in 2020 actually gave me a W2 with NJ listed as state and another W2 with NY listed as state. Two others listed NJ only, but I claimed it as NY income (as I was working for NY based employers paid through a 3rd party payroll company). The remaining 2 W2s that I'm definitely including are my spouse's 1 and the PA based employer.
Also follow up, if I only include one for the two w2s where I got a NY copy and a NJ copy, is it better I include the copy that says NJ or the copy that says NY, or does it not matter?
Thanks for everything, @ErnieS0 and all the other tax experts here!