NJ Total Wages Computation for NJ / NY Part Time Resident

[szou28]

Hi Turbotax Community,

I realized the limitation of Turbotax when dealing with NJ / NY Part Time Resident when processing NJ Tax Return.

Here is my situation:

• I moved from NY (New York City) to NJ last October. I am working in NY but living in NJ.
• My NY W2 contains all my income (assuming $50,000), however my NY city taxable income only includes period from Jan, 2024 - Oct, 2024, which is $45,000.
• but my NJ W2 contains only the income from Oct, 2024 - Dec, 2024. (assuming $10,000).
• My Federal W2 is $50, 000.

When deciding the total wages for NJ, Turbotax asked me "Let's Confirm Your Taxable State Wages from my company":

• State ID  | State Wage Amount (box 16) | Remove These Wages
• NY.          | $50, 000.                                     | ___
• NJ.          | $10, 000.                                     | ___

I cannot just remove NJ wages, because "some deductible at Federal level doesn't work from NJ level". (Why I know that? Because I was living in NYC. NY city only tax the income from Jan, 2024 - Oct, 2024 when I was living in NYC, my NYC income $45,000 + my NJ income $10, 000 > federal amount $50, 000). 

Should I manually update my "Total Wages Worksheet" for NJ, and adjusting the total wage to the correct amount? (Which should be NY city taxable income + NJ taxable income = $55, 000)

[DianeW777 · Accepted solution]

Yes, manually adjust the wages to the correct amount earned during your residency period for New Jersey(NJ) state wages. The key is the correct income on the tax return. Do not add more wages than you actually earned on the W-2 entry for states, using the Step-by-Step method. When you go to the state returns and select Part Year Residency, you should be able to allocate the wages appropriately in each state.

First, you file as part year resident in each state. 

1. New York (NY): All income is taxable to NY because you continued to work for an NY firm from your New Jersey (NJ) location after the move.
2. New Jersey (NJ): All income earned while living in NJ is taxable to NJ and must be included on the part year resident return.

Next you are allowed a credit for taxes paid to another state on your NJ return because NY is also taxing those wages for NJ residency period. To calculate the correct tax liability for NY on only the NJ wages, take the NJ wages divided by the total wages then use that percentage on the Total Tax on the NY return. This will give you the tax charged by NY for the NJ wages.

State Returns - Your resident state requires you to include all worldwide income. Assume both states require income tax returns to be filed: 

1. Report the income on each state return that is from the nonresident state
2. Report it on your resident state and receive credit for taxes paid to another state.

Credit for taxes paid to another state is allowed by a resident state when the same income is being taxed to another state.  Your resident state does not want you to pay tax twice on the same income. The credit that is allowed will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

In most cases complete your nonresident state first.