Problem showing MA income in AZ part-year return

[MAtoAZ]

I moved from MA to AZ in 2021.  During the whole year I was employed by a MA employer.  Let's say W2 income from this MA employer is $100k.  I also have about $1k in interest income from my time in AZ.

Turbotax has correctly recognized that I should file a part-year/non-resident MA return and a part-year AZ return.  But for my income on the AZ return it's just showing the interest income and not the W2 income.

What it should be doing (I think) is showing my AZ income as the full amount ($101k) because I earned the W2 income while resident in AZ; and then filling out Form 309 to let me get a credit against taxes already paid to MA.

I've tried tinkering with everything to get it to recognize the income but can't figure it out.  Any ideas?

[JohnB5677]

The $1K interest sounds fine.

It does not matter where your company is based.  What does matter is where you physically did the work.  I see two scenarios.

• If you started out working in MA and moved to AZ, but commuted back to MA for the whole time you were in AZ.  You would owe 100% income & tax to MA, and some % of income in AZ for the time you lived there.  As stated you would get credit in AZ for MA taxes.
• If you worked remotely from AZ, you would owe the % of income and tax to MA only for the time you worked in the state and the balance would be credited to AZ.  There would not be a credit for MA taxes in AZ, but you would get a refund on the MA taxes.

[MAtoAZ]

I started working in MA and, when I moved to AZ, worked remotely from AZ (your second scenario).

My understanding is that MA taxes all income received from MA sources, even by nonresidents.  From an MA state website: "Non-residents are taxed on items of gross income from sources within the Commonwealth, including income derived from or connected with any trade or business, including any employment, in Massachusetts.  M.G.L. c. 62, § 5A."  It is unusual in this regard but it does do that.

And my understanding is that Arizona allows a credit against these taxes paid IF the other state, like MA, does tax nonresidents on MA source income.

So on my reading, my AZ income is ~80k (amount earned while resident in AZ) but my credit should be the amount of taxes paid to MA (say $15k).

On your reading, my AZ income is $80k, MA income $20k, and I get an MA refund.

Turbotax isn't doing either of these though - it's saying my MA income is $100k, AZ income is $0.

[JohnB5677]

Please refer to MA 830 CMR 62.5A.1: Non-Resident Income Tax Rule 5

Employees Compensated on an Hourly, Daily, Weekly, or Monthly Basis. When a non-resident employee is able to establish the exact amount of payments received for services performed in Massachusetts, that amount is the amount of Massachusetts source income. 

Edited 03/29/2022

[TomD8]

MA taxes non-residents only on income earned within the state.  A non-resident's remote work done from a location outside MA is not taxed.  Check Example (5)(a)(1.2) in this MA tax reference:

https://www.mass.gov/regulations/830-CMR-625a1-non-resident-income-tax#:~:text=Massachusetts%20Sourc...

[MAtoAZ]

Thank you - I'm a lawyer (but not a tax lawyer) so I appreciate the citation to the regs.  Now I just need to figure out (1) how to read them together with others (my initial read of the reg you cited is that it just applies in the case of people who earn income from both MA and non MA sources) and (2) how to make sure Turbotax is doing things correctly.  Because as it stands now Turbotax is wrong from both of our perspectives!  (Saying I have no AZ income from my W2).

[MAtoAZ]

How does this square with 62.5A.3, which says that non-residents who are telecommuting because of the pandemic pay income tax to MA?

(a)  In General. Under M.G.L. c. 62, § 5A(a), income of a non-resident derived from a trade or business, including any employment, carried on in the Commonwealth is sourced to Massachusetts.  Pursuant to this rule, all compensation received for services performed by a non-resident who, immediately prior to the Massachusetts COVID-19 state of emergency was an employee engaged in performing such services in Massachusetts, and who is performing services from a location outside Massachusetts due to a Pandemic-Related Circumstance will continue to be treated as Massachusetts source income subject to personal income tax under M.G.L. c. 62, § 5A and personal income tax withholding pursuant to M.G.L. c. 62B, § 2.

[TomD8]

Assuming you never physically worked in MA after your move to AZ, and that your move was not due to a pandemic-related circumstance:

File a part-year resident return for each state according to these instructions:

How do I file a part-year state return? (intuit.com)

Then allocate all your income earned as an MA resident to MA, and all your income earned as an AZ resident to AZ.

In the Personal Info section of TT, answer No to having Other State Income.  "Other State Income" refers to income from a non-resident state.  In your remote work scenario, you have no non-resident state income, because your entire income is sourced to one or the other of your two states of residence.  There is no 'other state credit' in your situation.

Note that MA's teleworking pandemic regulation expired September 13, 2021.

https://taxnews.ey.com/news/2021-1273-massachusetts-to-end-covid-19-income-tax-relief-for-teleworker...