part year residents in VA and NC but had earned income source in VA only

[rehelton]

We were part year residents in VA and NC but had earned income source in VA only. VA 760PY allowed for income allocation for the portion of the year we were residents. When moving to NC state return in TurboTax we entered the status of Non NC sourced income per prompts. We were never prompted to enter allocation information for NC and ended up with 0$ tax liability in NC. How is this possible? VA did not tax the total income, only the allocated portion. I find it hard to believe that NC does not want to tax the earned income from the VA source for the portion of the year we resided in NC. HELP???

[DavidD66]

You are correct, North Carolina does want to tax the income you earned while a NC resident, even if you earned it in another state.  As you go through your NC state return, you should come to a screen where you allocate your income to North Carolina.  See the screenshot below:

[rehelton]

This page does come up but only allows allocations for interest, dividends and capital gains (loss). I am wondering what to do with earned income from a job sourced in VA.  The parallel page on the VA portion of turbo tax also had a section for wages, salaries, tips, etc.

On the page prior to the one you have referenced, I have indicated a status of "not NC source income" next to the wage section.

[MaryK4]

For Part Year Residents, North Carolina tax return, you only get taxed on the North Carolina income- however, North Carolina allows the full standard deduction- it does not prorate it according to the time you were a resident of North Carolina.  This means that if you filed Married-Joint, $21,500 of your NORTH CAROLINA only income is not taxed.

This is actually very generous and counter-intuitive, since most states apply everything pro-rata. 

@rehelton

[DShellB]

I have the same situation as above. I don't have my employment income on that screen.

[DShellB]

I have the same situation above. What does this mean? 

NC taxes the whole amount?

NC taxes none of the amount earned because it was in VA?

[AmyC]

Your resident state taxes all income but gives a credit for income taxed by another state. Your resident state provides roads, police, etc so they tax your income. Please carefully follow these directions to prepare the states in a special order. You may need to delete both states and begin again.

1. First, prepare your part year resident VA return. Since all income was earned in VA, all income is taxable to VA. This creates your tax liability for VA state. 
2. Then prepare your part year resident state NC return and it will generate a credit for your income already being taxed in VA for the same time period.
3. The credit will be the lower of the state tax liabilities on the same taxable income. You may owe your resident state,  if they have a higher tax rate along with differences in how the taxable income is calculated.

It isn't possible for the program to create a credit before it knows the liability. Your returns may be wrong if you do not prepare the states in this order.

You get credit for the lower state tax on the lowest taxable amount.

• Each state calculates taxable income differently. 
• Each state has its own tax rate/ system.
• You get the lowest of both categories as a tax credit.

@DShellB