My wife and I live in PA. I work full-time in DE. My wife works full-time in PA. Why is my wife's income impacting my DE refund? How do I correct my return?

[DavidD66]

It sounds like you don't have your Delaware income properly allocated in your Delaware state tax return.  Make sure you only include your income earned in Delaware in the Delaware source income column - see screenshot below:

[u518058]

I appreciate your response but it looks like it’s accurate. When I was filling everything out I entered my information / forms first and DE reflected what my refund would be.  Then I entered my wife’s information (none of it Delaware based) and the DE refund was less than half what was initially reflected when it was just my information.  Maybe that’s just how it is I don’t know but it doesn’t seem as though income outside of the non-resident return should have any impact.

[SundayInSalem · Accepted solution]

File a married filing separate Delaware return for just yourself. Delaware says, "Generally, separate returns will be advantageous if both spouses have Delaware adjusted gross income in excess of $9,400 or if only
one spouse worked in Delaware." See FILING STATUS 2 AND 3 – MARRIED.

You can file joint federal and separate DE.

Your wife's income is impacting your DE refund. Delaware uses your joint income to calculate a tax rate. Then your actual tax is the DE percentage of that tax. In other words, if you made $50,000 in DE and $100,000 combined, your tax rate is not based on $50,000 but 50% of the tax on $100,000, a higher rate. That's why your wife's income is cutting into your refund.

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[u518058]

The piece to figure out now is how to go about doing that but I’ll do some research.  Thank you for putting me on the right path I really appreciate it.

[SundayInSalem]

The desktop version of TurboTax lets you prepare a joint federal and separate state returns. It's a messy process. See: How do I prepare a joint federal return and separate state returns?

You can download your existing data into desktop so you won't have to reenter all your info.
See: How do I switch from TurboTax Online to the TurboTax software?

[stlucia95]

It still digs into your AGI to come up with the calculations for their proper tax rate.  I only worked there for 5 months yet they are using all my income for the year to calc the rate.  Not cool.  I should only owe the rate based on what I earned in the state.

[stlucia95]

So what is the actual fix.  Do we just file a paper return on the W-2 that I received from my DE employer?

[u518058]

Fill out everything to file your federal and resident state return married filing joint to maximize your deductions (if you are).  The non-resident is completed as well as you know , but when you are submitting your returns you can skip Delaware and only file federal and your resident state  Then create a separate new return on here (name it something different) where you select married filing separately and do not include your spouses w2 in the federal section.  Delaware will then accurately reflect what should be the only taxable income and then when you file you can choose to skip federal and only file the state return.