W-2 wages for two separate states

[hbmonsour]

I have a question pertaining to a W-2 from one employer that has my NC and VA wages totaling higher than my box 1 federal wages and am trying to understand if this is an error or I am missing something.  

I moved from Virginia to NC in the 4th quarter of 2024. I commuted back to VA to work for a month before I switched jobs due to obligations with this company. That explains why I have two states on one w2. Any explanation for this? I would have guessed my 2 state wages would have totaled my federal box 1 wage.

Thank you!

[KeshaH]

It's possible that your employer treated the income that you earned during that month when you were commuting back and forth as taxable in both states - which would be correct. Income is taxed in both the state in which you live and the state in which you work. The income that you earned for that month is taxable in both North Carolina and Virginia. 

However, you would qualify for a credit in Virginia for the tax paid in North Carolina on the income that was taxed in both states.

[hbmonsour]

I appreciate the response! Is there somewhere specific in turbo tax to get this credit?

[KeshaH]

As you go through the Virginia return you'll get to a screen with a list of tax credits in Virginia. Click Start next to Credit for Tax Paid to Other States and follow the prompts. Make sure you've completed your North Carolina return first.

[hbmonsour]

Thank you so much!

[hbmonsour]

Just to clarify does it matter which state you apply for the credit in? I know you said VA. Just wanted to be sure.

[JohnB5677]

You will reduce your North Carolina taxes by taking a credit from Virginia.

Taxes are withheld in any State that you either lived or worked in.

• You lived and worked in Virginia for a portion of the year.  
• In addition you worked in Virginia for an additional time. 
• I would expect that the income in Virginia will match box 1.
• You then lived in North Carolina for a portion of the year.
• Only that portion of the income (for the time you lived there) should be attributed to North Carolina.
• The combined State total will be more than your Federal income.
• You will take a credit in North Carolina because you did not earn any income on that W-2 in North Carolina.

[hbmonsour]

Thank you for the reply. I'll switch the credit to my NC state return.

I also have a follow-up question. These partial year returns are confusing.

1. I noticed when it asks for part year allocations it is asking for after deduction amounts (schedule c income). I'm guessing the best way to divide this out between the states is to figure out my percent off from deductions (85.66% in my case) and then multiple that by the income that goes to each state?

2. I noticed in my part year allocations that VA is asking for allocations on HSA, self employment tax, and retirement plan but NC does not. It seems like there should be a way to deduct portions from both state returns otherwise I'm losing portions if my deduction?

Hopefully that's clear.

[DianeW777]

The answers to your questions are posted below.

1. It's not clear how you are allocating the net profit. As long as you know the calculation accurately reflects the net profit in each state based on the residency period in each state you will be good.
2. Each state has different ways of taxing income, there may not be a section in the North Carolina (NC) return to adjust those deductions however review each section of that return.
   1. The NC tax is calculated by dividing NC income by the total federal income to arrive at a percentage that will be applied to the tax calculated on that return for your residency period.
   2. See the allocation pages in NC.

[hbmonsour]

I'm still having an issue because I cant find an area to list self employment retirement contributions under my NC state taxes allocation (VA lets me do this).

I'm wondering if this is because Turbo Tax has my NC state taxes as standard deduction?

I am itemizing my federal and VA state taxes currently.

Is it possible to switch my NC state to Itemize?  I feel like I'm losing a big deduction because half of my retirement contributions should be listed under my NC state return.

[KeshaH]

If you'd like, we can look at your return and see exactly what you see to  help come to a resolution. The return will be scrubbed and won't include any of your personal details.

If you're using TurboTax Online:

Once you're logged in to your account,

- on the left hand panel, click on Tax Tools and then choose Tools

- on the pop up window, select Share my file with Agent

- you'll see a message saying you'll give us a copy of your tax return. Your personal information will be changed so we can't see any private information.

- click okay and you'll get another message with a token

If you're using TurboTax Desktop:

• Click on Online in the top menu of TurboTax Desktop for Windows
• Select 'Send Tax File to Agent'
• Write down or send an image of your token number and state then place in this issue.
• We can then review your exact scenario for a solution

Please reply to this message with your token so that we can further assist you. Let us know all the states, if any, that are included on the return.

@hbmonsour 

[hbmonsour]

I appreciate the response! I think I figured it out. It was confusing because VA asked for information regarding my self employed solo 401k and NC did it automatically. 

Thank you again