Remote Worker in TN but Employer out of Arizona

[LadyHall]

Hi everyone, I'm hoping that I can get some help. I have talked to several people even Arizona Dept of Revenue and I keep getting different answers.  Here is my situation,

In July of 2022 my family and I moved to TN from AZ. Since my wife and I showed that we could do our jobs remotely, our employer let us keep our jobs. TN does not have state income tax while AZ does. Our employer has continued to withhold AZ state tax even though we live in TN and perform our work physically in TN.

We have been told because our employer is in AZ we still have to have AZ taxes withheld it doesn't matter where we are located. 

and then we have been told the opposite, that while our employer is in AZ since we are not performing the work physically in Arizona and we are fully remote it's based on where we live and not where the employer is.

Does anyone know the correct answer?

[DMarkM1]

In your situation for 2022 you have to file and pay AZ taxes.    In 2022 you were in AZ working for the AZ employer for more than 60 days in the calendar year.  Therefore there is an AZ withholding requirement and tax requirement even though you were non-resident for part of the year.    

For 2023 however, as long as you do not physically work in AZ for 60 days in the calendar year the company should not withhold AZ taxes and you do not need to file in AZ.  

Click here for the AZ reference.

[LadyHall]

@DMarkM1 Thank you so much that is what I thought. 

Since our employer has continued to withhold taxes since we left.  Would we entitled to a refund of the AZ taxes that they continued to withhold August 2022 - December 2022 and just pay taxes of what we earned January - July while we live in AZ?

Since they continue to withhold AZ taxes, is it just as simple as filling out a new A4 form and select elect an Arizona withholding percentage of zero?

[DMarkM1]

Yes.  Submit a new Form A4 to your employer with box 2 selected  for zero withholding and zero tax liability expected for 2023.  For 2022 in the "My Info" section indicate your resident state was TN and you lived in another state (AZ).  This will generate the part-year AZ form.  

In the AZ interview you will divide your income and deductions according to the time spent in AZ.  Since you have the same employer all year, you will need to divide your pay according to your pay schedule.  For example, if you are paid weekly divide your pay by 52 weeks and then multiply that result by the number of weeks in AZ. 

[LadyHall]

@DMarkM1  Thank you again, I really do appreciate your help. 

I have one final question to see if you know that answer. When I went to submit the new A4 form to them I was told that they do not have status in TN (that this is what ADP told them and they were just relaying it to me, so they couldn't explain it) and that I we areconsidered an AZ non resident worker and still subject to AZ tax.  Now this has me confused.   Have you ever heard of this? I just want to make sure that we are doing everything right on our end. 

[DMarkM1 · Accepted solution]

If you were an AZ non-resident and working in AZ you would need to apply for a Withholding Exemption Certificate.  Only residents of a few states (California, Indiana, Oregon or Virginia) who are working in AZ can get that exemption from withholding.  I'm sure that is where their confusion is.  

This does not apply to non-residents who are not working in AZ.  You are a non-resident and you are not working in AZ so there is no withholding requirement vice having a requirement because you work there and that you need to be exempted from.  There is no withholding requirement.  Your situation is indicated by the form A4 box 2.  

[veeiliana]

This is curious. My husband works remotely for a company in MD and his W-2 has TX (our resident state) in box 15, but my W-2 for the AZ company I work remotely for has AZ in box 15. Neither of us have set foot in the other state to work. AZ withheld taxes, and when I did the non-resident return, it says I was only owed about 1/2 of what I paid. I cannot find anything that says I do not have to file a return, only that I do not have to have withholding. 

[ShirlynW]

Generally, you’ll need to file a nonresident state return if you made money from sources in a state you don’t live in.

Withholding of Arizona state income tax from the commencement of employment is required for any resident employee physically working in the state of Arizona regardless of where the employer is based. Arizona law requires every employer to withhold Arizona income tax from those employees for services provided within Arizona. If an Arizona-based business hires an employee living in another state full-time or is no longer an Arizona resident, the employer is not required to withhold Arizona income tax from the employee's compensation because they are working in another state. 

[LadyHall]

Make sure to fill out a new updated A4 and mark box 2 for the exemption so that your employer doesn't continue to withhold AZ taxes. That is one of the things that caused so much issues in my situation. When we left AZ to TN no one told us that we needed to fill out a new A4 form to claim that exemption. So our AZ employer kept taking out the AZ tax. When we did out taxes since we were a partial year resident only the income that we earned while physically in AZ (Jan-July) was deemed earned in AZ and then what we earned now living in TN (Aug - December) but was still being withheld by our employer was fully refunded to us. 

[veeiliana]

@LadyHallthanks for the response! How did you get the full refund? Did they adjust it once they received it? When filling out the TurboTax info mine is showing that I will only get part of the withholdings back. My husband MD return is saying he owes money. We called both MD Comptroller and AZ DOR and were both told to submit the NR form... such a mess!  

[RobertB4444]

Lots of different states have lots of different rules.  You need to read up on the states rules.  All states with income taxes have nonresident forms.  Some, such as New York, tax income earned from New York sources even if you are working remotely.  TurboTax should walk you through the state return process.  Just make sure that you have told the system that you are a non-resident and that the money you earned is not subject to the state taxes and you will have the withholding returned to you.

@veeiliana 

[LadyHall]

When you get to the part of the non resident return and you get to the allocation screen and it asks you how much of your income was earned in AZ you would put 0, as you didn't earn any income while physically present in AZ.  That triggers the system to recognize that your income is not subject to AZ taxing and will refund you what was withheld. The biggest step right now is to make sure you get a new A4 form to your emplyer so they can stop withholding the AZ tax.