Severance Payment Income and Relocation

[phlatl1996]

During the first six months of 2020, I was a resident and employed in the state of Maryland.  In June, I began receiving severance payments.   In July, I relocated to Georgia and continued to receive severance payments taxed in the state of Maryland.  Do I allocate the July through December severence income to my Georgia taxes?  Does Georgia consider this to be state income since I became a permanent resident in July? 

[LenaH]

No. Your severance would be taxable in Maryland. You would have to file a part-year Maryland return and a part-year Georgia return and allocate your severance pay to the State of Maryland. 

Per the State of Maryland, your part-year resident return would include all income or loss that was derived from Maryland sources. Usually, in multi-state tax situations, the income source (and in which state you are taxed) depends on where the services are performed. Since you are getting severance due to your services rendered in Maryland, it would be Maryland source income. 

Furthermore, per the State of Georgia, severance is considered nontaxable when pay is received for which no services are rendered in Georgia. Only the portion of the income included in your W-2 that is received for past or future services rendered in Georgia, including accrued vacation, sick pay, and holidays, would be taxable for Georgia purposes.

[phlatl1996]

A couple of follow up questions to this post: 

As I understand the Georgia law, severance payments for non-residents of Georgia are not taxable.   I became a resident of Georgia in July 2020, earning severance income from a job in Maryland.   The Georgia tax forms state that income earned in other states while a resident of Georgia is taxable.    Where can I find the tax law for Georgia that states Severance Pay outside of Georgia sources is not taxable for Georgia residents?  

[ErnieS0]

It's on the Georgia Department of Revenue website.

Is severance pay received by a nonresident taxable for Georgia purposes?

Severance pay received by a nonresident is not taxable for Georgia purposes.

Nontaxable severance pay is defined as pay that is received for which no services are rendered in Georgia. Any portion of the income included in the W-2 that is received for past or future services rendered in Georgia, including accrued vacation, sick pay, and holidays, will still be taxable for Georgia purposes as is outlined in the next question.

For example, a taxpayer is terminated by a Georgia employer but the employer agrees to pay them $500.00 per week severance pay for two weeks. No services are required to be rendered to receive this pay. The first week the taxpayer receives a check for $1100.00, which includes $500.00 of severance pay and $600.00 of accrued vacation pay. The $600.00 accrued vacation pay is taxable for Georgia purposes but the $500.00 severance pay is not taxable. The next week the taxpayer receives a check for $500.00 for severance pay. This is not taxable for Georgia purposes.

Related Resource:

• Filing Residents, Nonresidents, and Part-Year Residents - FAQ