Multiple State Filing - State Income Allocation (MA, MD, DC)

[ryankhkim]

I lived in MA for 1/1/21 - 7/9/21 and physically moved to MD for 7/10/21 - 12/31/21.

For the entire time, I worked for an MA-based company. Due to company-specific tax policies, my company allowed me to work at a DC office and withheld my taxes in DC for 9/27/21 - 12/31/21 (prior to when state taxes were withheld in MA, despite updating my personal address with the company via Workday).

As such, I received two W-2s, where the first one includes all of my annual income (for boxes 1 - 12) and shows DC wages and taxes for boxes 15-17 relating to my wage for 9/27/21 - 12/31/21. The second W-2 just includes my MA state taxes for box 15-17 (with boxes 1 - 12 empty) in connection with my wage for 1/1/21 - 9/26/21.

I am really confused as to how to populate non-Maryland income, Massachusetts Income While Resident, and Massachusetts Income While Nonresident.

Would it be correct to populate these fields based on my W-2? - As in my MA state wage and income tax from my second W-2 gets used for Non-Maryland income AND my Massachusetts Income While Resident, with my DC state wage and income tax from my first W-2 gets used for Massachusetts Income While Nonresident.

OR should I rather calculate the allocation based on my physical time in these states? If the latter, how would I ensure that the calculations are not resulting in duplicate taxes?

[ErnieS0]

Yes, it is correct to populate your MA return based on your W-2s.

Massachusetts taxed remote employees who originally worked in MA but worked out of state due to the coronavirus pandemic.

That rule ended on September 13 and MA stopped taxing remote workers. 

Your first paycheck after the rule changed was probably September 27, which is why your employer started withholding D.C. tax from that point.

All income until September 13 is Massachusetts Income While Nonresident. I’m assuming the difference with September 27 is that the income was earned up to September 13 and paid on September 27.

Updated FAQs available on non-resident telecommuting and 830 CMR 62.5A.3: Massachusetts Source Income of Non-Residents Telecommuting due to the COVID-19 Pand...

[ryankhkim]

Thank you for your clarification on MA tax laws in connection with the pandemic.

Based on this MA state tax law and your clarification, could you confirm the below entry would be accurate based on my physical move date (7/10 moved from MA to MD)?

1. My MA income while Resident is equal to wages from 1/1 - 7/9 during my time in MA

2. My MA income while Nonresident is equal to my wages from 7/10 - 9/27 (equivalent  9/13) during my time in MD but prior to changes in MA tax rule for pandemic remote work.

3. My income after 9/27 (9/13) is NOT considered MA income despite my company being based in MA due to the state tax rule changing as of this date.

4. My non-Maryland income for my MD state filing is equal to the sum of 1&2 or entirety of my MA income through 9/27 (9/13).

5. My work in DC does not impact amount in (4) as I am getting my tax refunded via DC tax filing and should pay MD tax as a resident beginning on 9/27 (9/13).

Thank you again.

[DMarkM1 · Accepted solution]

1. My MA income while Resident is equal to wages from 1/1 - 7/9 during my time in MA  YES

2. My MA income while Nonresident is equal to my wages from 7/10 - 9/27 (equivalent  9/13) during my time in MD but prior to changes in MA tax rule for pandemic remote work.  YES

3. My income after 9/27 (9/13) is NOT considered MA income despite my company being based in MA due to the state tax rule changing as of this date.   YES you are correct.

4. My non-Maryland income for my MD state filing is equal to the sum of 1&2 or entirety of my MA income through 9/27 (9/13).  NO.  Your non-MD income is only the amount in #1.  Your MD income starts when you moved to MD 7/10.  The amount in #2 is double taxed by MD and MA and you will claim a credit on your MD return for taxes paid to another state.  Here are the steps:

1.  Return to your MA return interview and select "Update" for the "General Info" section.

2.  Verify your forms.  You should be filing "Non-resident and Part-year tax return".  If not, click "Change Residency" and select that category.

3. Continue to get back to the "Summary Page"

4.  Select "Update" for the "Your Bottom line" category

5.  Verify the "All wages" amount

6.  Continue to page titled "Income Adjustments"

7. Only fill in the allocated amounts for the period you were non-resident (7/10-9/27) and put zeros in the other boxes

8.  Continue through to the MA Bottom line page

9.  Take note of the MA income taxable and MA Income tax amounts, you will use theses for the MD credit

10.  Continue to get back to the MA summary page

11. Select "Update" for the "Your Bottom line" category

12.  This time you will add the allocated amounts for the MA resident period (1/1 - 7/9); now both columns should have amounts

13.  Complete the MA interview

14.  Return to the MD interview

15.  Edit the "Credits" category

16.  Scroll down to "Taxes paid to another state"

17.  "Start" and follow the prompts to get the credit for the tax on the income between 7/10 and 9/27

5. My work in DC does not impact amount in (4) as I am getting my tax refunded via DC tax filing and should pay MD tax as a resident beginning on 9/27 (9/13).  Partially correct. See #4 above.  Your MD residency began 7/10 and you will pay MD tax on all income from that date including the double tax time period that you will get a credit for.  As you note however, there will not be double taxation by DC due to the reciprocity agreement between DC and MD that states you only pay tax in your resident state. Thus the DC taxes withheld will be refunded.

[ryankhkim]

Thank you very much @DMarkM1 , and I have couple additional follow up questions if you wouldn't mind...

1. If I earned an annual one-time bonus payment after I moved to MD (but before 9/13), should I try to split this to record a part of this as MA Income while Resident (to represent the time I worked in MA to earn this bonus) or should this rather entirely count toward MA Income while Non-Resident as I was physically in MD when I received this payment?

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Some additional questions related with my Wife's income for state filing. My wife worked for an MD university for 2021 (remotely during her time in MA until 7/9) and as such her W-2 only states MD state wages and income tax withholding for boxes 15 - 17.

2. Would her MD-withheld income during her residency in MA (1/1 - 7/9) count as MA Income While Resident or should this be 0?

3. Should our non-Maryland income include the portion of her income recorded for #2 (MA Income While Resident)?

4. Would there be any Credit for Taxes Paid to Another State that should be recorded either for MA or MD State Filing given she withheld MD taxes but is counting her income toward MA taxes in #2?

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5. In general, I am confused about the high amount of additional state taxes due for MD in my situation as a product of the Turbotax system (2.2% of our aggregate wage in box 1 of our W-2; 3% of our wage additional due for MD is currently being offset by 1% tax return amount from DC).

Based on me and my wife's W-2, in 2021 we withheld 5.1% of our aggregate wage for state taxes. Based on my review of state tax rates in the applicable states, both MA and MD state tax rates come out to ~5.0% for our income bracket. Is it possible that I am appropriately due another 2%+ of our wage on top of the 5.1% already withheld or would there be any areas for common mistakes that I can double check to stay closer to the estimated 5% state tax range? 

Thank you very much.

[DMarkM1]

1. If I earned an annual one-time bonus payment after I moved to MD (but before 9/13), should I somehow split this to record a part of this as MA Income while Resident (to represent the time I worked in MA to receive this bonus) or should this rather entirely count toward MA Income while Non-Resident as I was in MD when I received this payment?   You should allocate according to your residence when you earned it.  So total bonus payment divided by number of payperiods and then multiply the result by the number of payperiods in MA to get that allocation.  The rest is MD income.   

My wife worked for an MD university for 2021 (remotely during her time in MA until 7/9) and as such her W-2 only states MD state wages and income tax withholding for boxes 15 - 17.

2. Would her MD-withheld income during her residency in MA (1/1 - 7/9) count as MA Income While Resident or should this be 0?  This income is MA resident income during the MA residency period.  

3. Should our non-Maryland income include the portion of her income recorded for #2 (MA Income While Resident)? Yes.  MD does not tax non-residents working remotely out of MD.  

4. Would there be any Credit for Taxes Paid to Another State that should be recorded either for MA or MD State Filing given she withheld MD taxes but is counting her income toward MA taxes in #2?  No, the amount withheld by MD will be credited as a payment toward your MD tax liability and the income will not be allocated to MD.  So no double taxation.   Since there was nothing withheld by MA on that income, your liability there will increase.

5. In general, I am so far incurring a much larger MD state tax due vs. the aggregate tax refund from MA & DC despite having withheld ~4.8% of state tax for MA and ~6.8% of state tax for DC in my W-2 (net of DC refund, with minimal tax dues for MA, I have 2%+ of my annual income currently additionally due for MD state taxes). I am confused as to why this is the case as all three states roughly have similar state income tax rate (5-6%) with slightly higher tax rates for DC and certainly not the full 2% difference between MA and MD state tax rates for my income bracket. What would be the way to best double check my filing and tax amounts to ensure I am not over-paying state taxes?

Once all entries are made you can see a tax summary of each state return with these steps:

1. "Tax Tools" in the left hand menu
2. "Tools"
3. "View Tax Summary" in the main screen
4. "XX State Tax Summary" in the left hand menu

There you can see the taxable income and compare to the tax brackets in your states.  Below are links to MD, MA, DC tax brackets.

MD tax brackets

MA tax brackets

DC tax brackets

[ryankhkim]

@DMarkM1 Thank you so much and your help has been extremely helpful.

I have some additional follow up questions.

1. Previously, you taught me how to calculate the portion that is double taxed by MA and MD by taking note of MA income taxable and MA Income tax when only recording my MA Income while Nonresident and wiping out my MA income while Resident.

If I compare the resulting MA taxable income and tax amounts from the above method to the incremental taxable income and taxes paid resulting from MA Nonresident Income Tax (calculating the difference between taxable income and taxes with and without MA Income while Nonresident in addition to MA Income while Resident in place), the amounts are somewhat lower in your methodology supposedly due to how deductions work. Would recording the incremental taxable income and taxes paid for MA income while Nonresident as part of my MD state filing be also an acceptable methodology, as this is really the difference I am paying additionally to MA from their nonresident tax rule?

2. Per the system MD is currently charging me interest charges for the taxes that are due during 2021. Because I will continue to be working in DC and my taxes will be withheld by DC in the future as well, I will always have my taxes refunded from DC and paid to MD during my tax filing after the calendar year. Is this interest charge really appropriate in my situation and would I always have to pay interest every year as my taxes are withheld in DC?  Would the only way to avoid interest charges to pay double taxes to MD and DC prior to tax filing (vs. some exception allowed by reciprocity agreement between MD and DC)? 

[ryankhkim]

Hi, I am following up to see if anyone is able to help me out here. Thank you.