Question about 1099 income in neighboring state

[test5831]

Hello

I’ve researched online and on this forum specifically as well and cannot seem to find an answer to this particular question. If I have 1099 income from PA, but I am a resident of West Virginia, which state do I pay taxes to? I understand that there is a reciprocity between the two states, but per the official PA tax information website, this apparently does not apply to non-employee compensation. Can someone please kindly advise?

Thanks so much 

[user17561526269]

Pennsylvania's reciprocity agreement is only available to employees not independent contractors. So you will need to file both West Virginia and Pennsylvania income tax returns.

Bethany, EA 

10 years experience 

[test5831]

Thanks for the response. But in terms paying, do I owe taxes to both states…? How will that work? And if I need to make estimated payments, who will I be paying that to? Both? Thanks.

[Hal_Al]

Q.  If I have 1099-NEC income from PA,, do I owe taxes to both state? How will that work?

A. You will pay tax  to PA.  Technically, you will also report the income on your WV tax return, and calculate WV tax on that income. .  But WV will give you a credit, or partial credit for any tax you pay to PA.

Q. I understand that there is a reciprocity between the two states, but per the official PA tax information website, this apparently does not apply to non-employee compensation.

A. That is correct.

Q. And if I need to make estimated payments, who will I be paying that to? 

A. Only PA, since the WV credit will result in little or no WV tax on the 1099-NEC income. 

[test5831]

Thanks for the response. Is the online TurboTax software able to handle all this?Dealing with both W-2 and 1099 incomes, then multiple state returns (non-resident and resident) as they pertain to W-2 and 1099 incomes separately, and then further sending the non-resident PA return for just the 1099 portion to WV? I imagine WV will need proof of the payment to PA by seeing the PA return, yes? Can the online TurboTax software handle all these complexities? I have had trouble with TurboTax in the past with simpler situations. Thanks.

[Hal_Al]

Q.  Can the online TurboTax software handle all these complexities?

A. Yes.

Q. I have had trouble with TurboTax (TT) in the past with simpler situations?

A.   TT can handle it. But, it can be complicated and you need to follow the interview carefully.  If you've had trouble in the past, you may want to considered professional help, including the TT live help versions. 

Q.  I imagine WV will need proof of the payment to PA by seeing the PA return, yes?

A. No, at least for 2024. I assume it will be the same for 2025 (WV recently changed it). If a copy of the PA return is required, TT will include it in the filing. 

[test5831]

Ok, thanks. I appreciate your help. Also, generally, if you pay the tax to one state, does the other state (state 2) generally exempt you of any tax on that income? Or do you end up still some money to state 2 because they do their own calculations? Just asking for what you’ve seen most commonly. Thanks for your help. 

[Hal_Al]

Q.  Also, generally, if you pay the tax to one state, does the other state (state 2) generally exempt you of any tax on that income?

A. Technically, no.  But,  because of the "other state credit", effectively yes.  Or, more accurately, partially yes. See next question. 

Q.  Or do you end up still owing some money to your home state because they do their own calculations? 

A. Maybe. It depends on the calculations.  Pennsylvania has a single-rate income tax of 3.07%, while West Virginia uses a progressive, multi-bracket system with rates ranging from 2.22% to 4.82% .  So, depending on where you fall, on the WV brackets, the PA credit may not be enough to cover the full WV tax.  Also, the  credit is limited to the amount of WV tax calculated on the PA source income.  So, for example if the PA tax is 3.07%, but WV only taxes you at 2.22%, WV will not give you credit for the full amount of PA tax paid. The simplified calculation is 2.22/3.07 = 0.72; WV would only give you credit for 72% of the PA tax paid. 

[test5831]

Thanks for your help. I appreciate your time.