Pay Oregon tax for income earned in Washington while living in Washington? Complicated by marriage and joint return.

[crlaynestaxes]

Key points:

1) Got married 2023.

2) Wife lived and worked in Washington pre-marriage. (No state income tax in Washington.)

3) I lived and worked in Oregon pre-marriage.

4) Wife moved to Oregon post-marriage.

5) Wife did not work in Oregon 2023.

6) I started joint tax return in Turbo Tax.

7) After entering my W2 OR Tax Due was a refund of several hundred.

😎 After entering wife's W2 from WA, OR Tax Due shows over $2k owed.

Questions:

1) Is this correct or is Turbo Tax erroneously calculating OR state tax based on joint income when it should only be calculating OR state tax based on my OR income? i.e. Wife's income shouldn't be taxed by Oregon.

2) If Turbo Tax is incorrect, how do I fix it?

3) If Turbo Tax is correct, are we better off filing separately for 2023?

Thanks in advance for any help.

[AmyC · Accepted solution]

1. Turbo Tax is not erroneously calculating but you may have erroneously started the wrong type of return.

2. To correct the situation, do not  file Oregon as a full year resident for your marriage. You were a full year resident but the married couple filing was not.

3. File a part year return for Oregon and show only your Oregon wages in the return.

See filing requirements  on page 5 at Form OR-40, Oregon Individual Income Tax Return for Full-year Residents Instructions

[crlaynestaxes]

Thanks! I assumed TurboTax would have handled that distinction automatically (or at least walked me through it) based on the personal info entered at the start, i.e. that my wife moved to Oregon mid year, and that her W2 box 15-17 were blank (on purpose). But based on your answer I was able to find the location where I could manually change the Oregon state filing from Resident to Part-Year Resident and correctly report Oregon income. That fixed it.

[crlaynestaxes]

Follow on question... Turbo Tax is flagging a field in my Oregon state return. The "Dates of Residency" fields. It wants "from" and "to". The "to" is obvious. 12/31/2023. But the "from" is less obvious. Since I've been a resident all year, maybe it should be 1/1/2023. But since my wife (and our tax entity of a joint couple) has only been a resident since 9/2/2023, maybe that's the correct "from" date. I suspect if I go with 1/1/2023 my return will be flagged as incorrectly filing part year resident. So I'm leaning towards 9/2/2023 but don't know if that will have some other unintended consequence. Thoughts?

Thanks in advance!

Chad

[DMarkM1 · Accepted solution]

Yes, the 9/2/2023 date is correct and will have the intended consequence of confirming a part-year OR joint return.  In the OR interview you should allocate all of your income to OR since you were resident all year but only allocate part of your spouse's income to OR based on that 9/2/2023 date.