How can I e-file my federal return if my W-2 shows state withholding more than 50% of my W-2 wages?

[Rachel_W · Accepted solution]

Unfortunately, you will not be able to E-file your Tax Returns if your State Withholding exceeds 50% of your W-2 wages. 

When the withholding is such a high percentage, your Tax Returns must be mailed with your Form W-2 attached so that the figures can be verified. 

[Arsenal171]

How can I e file my federal return if my w-2 shows  state withholding  more than 50% of my w-2 wages?

[Kevinez]

Both Federal and State cannot be e-filed?  That seems to be the issue I'm running into.  Got a small second W-2 from my employee for work I did in a different division of the company, less than $125.  They put down $70 in the State income box.  Cannot get the Federal to e-file. 

[HMW8419]

Federal electronic filing gives error code 0295 in that case (as below)

·  Form W-2 - Neither Withholding (SEQ 130) nor Social Security
Tax (SEQ 150) of the combined W-2s and/or W-2GU(s) can be
greater than 1/2 (50%) of Wages (SEQ 120)

And therefore paper returns have to be filed!

And if you can't efile federal then you can't efile state either!

[HMW8419]

see message I sent on post

[KathrynG3]

That is correct. Tax withholding cannot exceed 50% of the reported earnings in Box 1. In some situations, the state wages are different from Box 1. Regardless, the income must be reported as received on Form W-2. Otherwise, if the earnings are reported inaccurately, the employer would need to reissue a corrected Form W-2.

The returns must be paper filed so that the figures can be verified. 

For more information, see: 

How do I print and mail my return in TurboTax Online?

How do I print and mail a return in the TurboTax for Windows CD/Download software?

@Kevinez

@HMW8419

[outdoorjunkies]

Hello, my situation is still working remotely in Washington but my employer is still issuing W2s reflecting that I am working fulltime in Oregon.  Since Oregon's income tax is based on location and Washington has no income tax, Oregon requires that you recalculate your W2 wages and back out the extra.  So, when I send this into the IRS it will make no sense to them unless they are aware of this specific tax situation.

[ErnieS0]

Your state tax situation will not affect your federal return @outdoorjunkies. The IRS is interested in federal income, not Oregon income.

If TurboTax files your federal and state returns together, it knows to send your federal return to the IRS and the state return to Oregon.

If you deducted Oregon state tax withheld on your federal return and got the whole amount back as a refund, that refund will be reported on next year's tax return – and Oregon will send a Form 1099-G to you and the IRS so there will be no confusion.

You are correct that Oregon does not tax an employee working remotely in Washington. Oregon says: "Compensation for personal services performed by a nonresident employee wholly outside this state and in no way connected with the management or conduct of a business in this state is excluded from gross income."

Rule 150-316-0165

[115gray]

Is this just a Turbo Tax issue with the software? We have both worked for our employers for over 20 years. My wife works for a hospital system in both Kansas (resident) and Missouri. We never had this issue until switching to Turbo Tax. I’m getting the error that the tax paid is more than 50% of income from Kansas. IRS has to verify what is printed on the W-2 (and electronically uploaded from our employers)?

We snail mailed our returns last year because of the same issue and the federal refund took 8 months!

[RobertB4444]

That is a rule that the IRS has.  You should never have been able to efile them.

@115gray 

[ssander]

I have a similar issue - I have two W-2s from the same employer, however one has a very small amount with >50% withheld for state taxes. Is it okay to consolidate the two W-2s in order to avoid this issue?

[RobertB4444]

Yes, if both W2s are from the same employer then you can consolidate them in order to file.

@ssander