Working Remotely from Virginia - Client is in NC

[kranthinv]

I am currently residing in VA state due to Work From Home. But client resides in NC State.

Due to that my company continues to withhold taxes from both states.

Could you please help me which forms i need to submit in order pay tax only for VA state as I reside only in VA.

[rjs]

Where you "reside" is only part of the story. It matters where you physically work. Do you work at the client location in North Carolina, even only occasionally, or do you work exclusively in Virginia?

Any income you earn for working in NC is subject to tax by NC. Since you live in VA, all of your income is subject to tax by VA, no matter where the income is from. If some or all of your income is subject to tax by both states, you will get a credit on your VA resident tax return for part or all of any tax that you pay to NC.

However, if you work only in VA your income is not subject to NC tax, and you do not have to pay any NC tax. It doesn't matter where the client is located. If you physically work only in VA, your employer should not be withholding NC tax. If you never work in NC, and they are withholding NC tax, they are just doing it wrong. You should just ask the payroll department to stop withholding tax for a state that you don't work in. If they want you to fill out a form for that, ask them to give you the form.

Did you previously live in NC? If so, that could be why they are still mistakenly withholding NC tax. Did you properly notify payroll that you moved?

[kranthinv]

I have recently started my job in Aug 2022. My work location is NC but due to pandemic I am working from home in VA. May be after few months I might move to NC. 

As of now , I have not worked any time at NC in the client office. I only work from VA from home.

I repeatedly asked the HR - why they are deducting NC tax as I don't like in NC.

The HR complaints as Work location is NC even through you reside in VA due to pandemic.

Due to that they are deducting NC state tax as work location and VA tax as Resident tax.

I am also surprised as they are charging both states the same amount. 

[NCperson]

@kranthinv - that 'work location' indicator in a payroll system is normally what triggers the withholding in a particular state.  That work location is a physical location.   And since they have a VA residence address for you, I can understand why they are withholding in both states. 

If it is not resolved, it will be resolved on your tax return.  You will complete a NC tax return as a non-resident.  Then you will complete a VA tax return.  Whatever the tax paid to NC is (and this is not the withholdings on the paycheck) becomes the basis of a credit on the VA tax return, so you are not taxed twice on the same dollar. 

Since they have already withheld taxes in both states, even if resolved, you'll have to file in both states in any event for 2022.  

[kranthinv]

Totally Agreed with you.  I do also aware that usually as I reside in VA state, I used to pay full state tax to VA.

As my work location is in NC - I suppose to pay some minimal tax (Not full tax like i used to for VA state). 

In simple terms, My paycheck will be deducted by full state tax for VA state and some minimum state tax for NC state.

Is this correct !!

If yes, what forms i need to submit to my HR or how can i convey similar thing to my HR !!

[NCperson]

@kranthinv 

<< In simple terms, My paycheck will be deducted by full state tax for VA state and some minimum state tax for NC state.

Is this correct !!>>

not necessarily, it may be the other way around.  This is why you are going to complete two state tax returns next year.  

if NC has a higher tax rate than VA, you are going to pay most of the tax to NC and little to VA.  (so stated another way, you'll get a large refund from VA and might owe a lot to NC). 

personally, I wouldn't worry about it; doing the two state tax returns will ensure you are not getting taxed twice on the same dollar of income.

[TomD8]

"My paycheck will be deducted by full state tax for VA state and some minimum state tax for NC state.

Is this correct !!"

If you're a resident of VA and you never physically work from a location within NC, then NO, it's not correct.  As @rjs explained in his original answer to your question, the work income of a VA resident who never physically works in NC is not subject to NC income tax.  Hence your payroll office should not be withholding NC taxes at all.

Your "work location" is where you actually (physically) perform your work.

As @NCperson stated, if you can't get your payroll department to correct your withholding, then you can resolve the problem at tax time.  To do so, you'll have to file a non-resident NC tax return on which you claim zero NC income.  This should result in NC refunding to you all the incorrectly withheld NC taxes.

[kranthinv]

Thank you for the response.

As you are aware of my scenario - that I am working from VA state only due to Pandemic , WFH and client is at NC State (Work Location).

Could i know which state forms I need to fill it - 

Virginia State  - VA-4B or VA4

North Carolina - NC-4EZ or NC4

[Opus 17]

The absolute most important question you must answer is "Where do you live now."  More specifically, where is your permanent residence?  Where are your doctors, dentist, children's school, voter registration, drivers license and car registration and so on.   I don't see that you answered clearly, but you say that you are starting a new job, will "work from home" in VA, and relocate to NC later.  You must be clear on this point, I feel you have missed the importance of the question.

If you are a permanent resident of NC now, you must report all your world-wide income to NC and pay NC income tax on it.  Even if you are temporarily out of state.  You will file an NC resident return.

Then if you are working temporarily in VA, you owe VA a non-resident income tax return that reports income earned while living or working in VA.  NC will give you a credit for taxes you pay in VA that will offset most of the effects of double taxation.  You would file either an NC-4 or NC-4EZ (they are equivalent) and a VA-4.  VA-4B is not correct, that is for a Virginia resident who must pay out of state tax.   You may want to make manual adjustments to your NC-4 to reduce your withholding so you get more money in each paycheck instead of a huge tax refund from NC at the end of the year, but that is beyond what we can advise on.  You may want to speak with a tax professional.

However, if you are a permanent resident of VA for now, then you only owe VA income tax.   NC does not tax you for income that you earned while living and working outside of NC, even if the company is based in NC.   NC will only tax you if you relocate to NC either temporarily or permanently.  For now, you only file a VA-4.  If the company insists you file an NC-4, claim exempt.