State Tax deduction was not updated for Actual and Delaware has recalculated and fined me

[mom42]

We use Turbotax to do our taxes and have for many years.  In 2018 my husband moved from Arizona to work in Maryland.  I stayed in Arizona, and continued to work in Arizona.  My husband rents a house in Delaware, so his residency is Delaware.  Delaware notified us that the Delaware tax we paid was incorrect, and has calculated that we owe them another $3,000.  The reason is that when Delaware did the calculation, they used the actual amount of taxes we actually ended up paying in 2018, and not what was deducted from our paychecks before the higher East Coast taxes were calculated.  The Delaware tax agent said something about Turbotax always doing the calculation wrong, and to calculate the Delaware tax last.  I don't remember having a choice when I used Turbotax for our 2018 taxes.  Has anyone had this happen, and does my experience sound right?  Thank you for your help.  

[TomD8]

It's not clear from your question how you filed your 2018 state tax returns.

It would help to know the following:

Did your husband literally move to DE in 2018, making DE his new home, or did he go there temporarily for work while planning to return to AZ when the work was done?

If the move was temporary, did he live in his DE apartment for 183 or more days in 2018?

Did he actually work in MD in 2018, and if so, did he file an MD tax return?

Did he file a part-year resident AZ return to account for his income prior to the move?

If he filed an MD tax return, did he take a credit on his DE return for the taxes he paid to MD?

[mom42]

He's making Delaware his new home at least until he's not happy there, and moves on.  It would have been less than 183 days (9/16/18), but he does consider it permanent.  He did work in Maryland and still does work in Maryland and wherever else he can go, and we did file a joint Maryland return in 2018.  Yes, he did file a part year Arizona return to account for his income prior to the move.  Yes, we took a credit on our Delaware return for the taxes we paid to Maryland and Arizona.

Thank you for replying so quickly. 

[TomD8]

"Yes, we took a credit on our Delaware return for the taxes we paid to Maryland and Arizona."

You should not have taken a credit on the DE return for the taxes paid to AZ.  You can only take an out-of-state credit on income that is taxed by both states.  His income after moving to DE would not have been taxed by AZ (unless he continued to work in AZ after becoming a DE resident).

His income from MD would have been taxable by both MD and DE, so it was proper to take a credit on the DE return for taxes paid to MD.

[mom42]

Any idea how we would enter the tax through Turbo Tax so that my income is taxed only in AZ and his income is taxed in DE and Maryland except for the part of the year before he moved in September?  At least in 2019 he wasn't working at all in AZ.

[TomD8]

The key is to enter your 2018 state residence information correctly in the My Info/Personal Info section of TurboTax, for both you and your husband.   

Your husband would enter his state of residence as DE and indicate that he moved from AZ during the year.  He would also indicate that he had Other State Income from MD.  Your husband's "move" date would be the day he began living in his new residence in DE.

You would enter AZ as your state of residence and answer No to the questions about moving and having other state income.

That should prompt the program to produce the correct state forms.  Then he should complete the state returns in this sequence:  MD>DE>AZ.