Part year state tax question: Why is State Taxable Income greater than State Adjusted Income? Getting overtaxed by state because it using my Total Gross Income?

[greenwoodms]

Background: I moved part way through the year. In State A I earned $A then I moved to State B and earned $B. The incomes between the two states do NOT overlap in terms of residency, etc.

My total income for the year is now $C = $A+$B. 

In filing my State A tax return it pulls my Federal Gross Income ($C) and asks for State A income ($A). I then continue and TurboTax tells me my adjusted gross income is $A (as it should be for the state). But in the review process my State Gross Income is now $C and therefore my State Taxable Income is $C less standard deductions.

In other words, this reported State A Taxable Income is greater than $A and therefore the income tax due to State A is (I believe) being calculated from Income that is not taxable by the state and is therefore higher than it should be.

Any thoughts!?

[greenwoodms]

After further research I found an answer that seems reasonable (whether or not I agree with tax laws is of course another question altogether 😛 ).

Bottom line: It appears that the calculation is correct.

Why?: 

The federal income sets your tax bracket. For example using the same variables definitions as above (i.e., A, B, C), $C has a tax rate of 10%. If the federal income was $1000 that would mean the tax rate would put taxes at $StateTax =  $100. 

Now to calculate how much State A charges for state taxes the percentage of income in each state is multiplied by the $StateTax. For example, say 60% of the income came from State A and 40% came from State B (i.e., $A/$C *100 = 60%). What is paid to State A is thus 60% * $StateTax = 60% * $100 = $60.

This is why the State Taxable income is greater than the state gross income. 

[DaveF1006]

In this instance, you might contact Turbo Tax phone support as they have the ability to look at your forms on your screen to find out why your state taxable income is greater than your state adjusted income. .