Should I file taxes in PA or NC if I was living and working in NC but being paid by a PA company and having PA state taxes withheld?

[amgk]

I am looking for some advice about filing my state taxes. My question is essentially about whether I pay state taxes to NC or to PA for the first half of 2018.

I am currently a full-time university faculty member in NC, but I was previously a full-time faculty member at a PA university for four years. During that time, my husband lived in NC, and I commuted between the two (I had an apartment in PA; he had our house in NC).

In late December of 2017, I moved back to NC full time, but I was STILL employed by my PA university. I was on a semester-long paid research sabbatical in the spring 2018 semester, so I was still being paid by my PA university from January through mid-August, even though I was not physically present in PA (nor was I required to be). During that period I was given an unpaid visiting appointment at an NC institution (office & library access only). My PA institution did not have an "expectation of return" clause in my sabbatical contract, and I quit in the summer to take a job in NC.

When I returned to live in NC in late December 2017, I gave up my apartment in PA, moved back home to NC, and changed my driver's license and car registration back to NC in late December, so I was an NC resident for the entire 2018 year. I did not live or work in PA at all during the 2018 tax year, despite having PA taxes withheld from my paycheck.

While I know I will need to file state returns in both states (since I have had PA taxes withheld Jan-Aug and NC taxes withheld Aug-Dec), I am unsure about which state gets my state taxes for the first half of the year! On TurboTax it seems as though I can figure out a way to answer the questions on my PA state return to get a full refund of my taxes based on the fact that I was an NC resident and on leave from my job in PA during 2018. But I can also figure out a way to file my NC state tax return to get credit for paying PA state taxes. Obviously, I owe taxes to one of these states, but presumably I don't have to double up on the state taxes for the first part of the year. I am guessing that the taxes actually go to NC rather than to PA, since that is where I was living and doing my research, but I'm just not sure, and I want to do this right!

I would be EXTREMELY appreciative if anyone has any advice on this rather unusual issue. Thanks!

[re2boys · Accepted solution]

It appears that your PA employer considered you a telecommuter.  They didn't care where you performed the work for them.  PA is one of six states (that I know of)  that tax the wages of a telecommuter.  Thus, the wages are considered PA sourced income and subject to taxes and withholding.

You would file a PA non-resident return reporting only the PA sourced income.  Very likely, your tax liability will match the tax withheld by PA resulting in a zero balance due/refund.

You would then complete a NC resident return reporting all income, including the PA sourced income, and calculate your NC taxes.  The interview should ask if you paid taxes to another state and give you a credit on your NC return due to paying taxes to PA.  It may not be dollar for dollar due to differences in tax rates between PA and NC.  The credit is so the same income is not taxed by both states.

See also: https://revenue-pa.custhelp.com/app/answers/detail/a_id/3599

[amgk]

Thank you so much--this is SO helpful! Is it likely there will be any issue from NC with me NOT paying those taxes in this state (via asking for a credit) despite the fact that I lived here? I worry a bit about ending up getting taxed on that income twice! Thanks.

[re2boys]

It shouldn't be an issue with NC.  If you wished to play it safe, file a paper return with NC and include a copy of the PA return showing the taxes paid (and income )to correspond with the credit.  Up until a year ago, I prepared taxes for a CPA firm here in PA, so the credit was routine issue.

[amgk]

Thank you so much!