State Tax Credit for Both States Tax Returns (moved from NY -> SC and all W-2 Income is NYS Source)

[TerboTaxer1011]

Hi - I'm very confused on how these multi-state income taxes work. Simplistically, I had a NY-based job but moved and established permanent residency in a different state in early 2020. I continued to withhold and pay into NYS taxes but will file for a refund on portion of taxes I was paying into NYC that didn't coincide with when I was living in NYC.

On my SC tax return, I show "SC Gross Income" which is equal ~equal to my 1040 gross income and then I show ~95% of that being taxed by another state, so I pay some small SC taxes (~$500) after applying my NYS credits against SC (SC tax rate is higher than NYS tax rate).

What I'm confused about is, I file NYS IT-203 part-year resident and there's a section for "taxes paid to other states", which looks to be form IT-112-R. Based on that link, I'm eligible given I'm filing as a part-year resident and SC is taxing all my income (but I'm receiving a credit from NYS taxes paid). So my question is, am I eligible to get the $500 as a "New York State nonrefundable credit" which reduces my NYS tax return?

Intuitively, what this does is any taxes I owe to SC would then be a credit to my NYS return which feels great but I'm not sure I can apply credits from NYS to SC tax return and then whatever remains from that resulting return back to NYS as a "resident credit" (it's kind of circular?).

Let me know what you think.

[ErnieS0]

Residents and part-year residents are the only ones who can claim a credit for taxes paid to other states. You can't claim an other state credit on both a resident and non-resident return. You'd be double dipping.

New York does tax telecommuters and if your company continues to withheld New York state tax, it means they still consider you to be a NY-based employee even though you permanently moved to South Carolina. 

You are correct about New York City tax. Are can claim a refund for NYC income tax for the period you lived in SC.

If your only income was from your NY job, you probably will owe some money to SC. As you said, the SC rate is higher than NY. It's 7% on incomes above $15,400 while NY doesn't go past the 6%+ until you earn more than $1,077,551.

You would NOT be eligible for the credit for taxes paid to other states on Form IT-203. You are seeing that credit because you moved but continued to earn NY source income while living in SC.

That portion is the part that would be covered by the credit on your SC return. You should delete Form IT-112-R. During the period you lived in NY, you only paid taxes to NY and NYC so there is no credit for that portion.

Check South Carolina. Make sure you are filing a part-year return and that your income allocations are correct. It more generally more advantageous to use "Nonresident OR part-year resident filing as a resident" than "Resident OR part-year resident filing as a resident." You can toggle both ways and check the tax due box.

[TerboTaxer1011]

Hmm okay- so IT-112-R doesn't apply to me solely because I fall under the below clause for IT-112-R instruction sheet? Am I a dual-resident because I am a South Carolina resident ("resident OR part-year resident filing as a resident") as well as a NY "part-year resident"?

Taxpayers with dual residency status – If you are a resident of New York State for personal income tax purposes and also deemed a resident of another state for income tax purposes under its law, no credit is allowed if the other jurisdiction allows a credit against its tax for the total resident tax paid to New York

Regarding your point on filing status for SC, I only have two options below. When you say advantageous, how could I be any other option besides #1? I'm a bit confused on how to "try both" to see the results.

1. Resident OR part-year resident filing as a resident
2. Non-resident OR part-year resident filing as a non-resident

[ErnieS0]

You are not a deemed resident because you moved permanently to South Carolina. A "deemed resident" is someone who has two houses.

You are not able to claim the other state tax credit for NY because your NY double-taxed income is the portion you earned while you were living in South Carolina. And SC is giving you credit for tax paid to NY.

Suppose you made $100,000 ($50k NY and $50k SC), SC taxes $0 while you lived in NY. When you moved to SC, NY taxes $50k and SC taxes $50k. SC is giving you credit for the tax you paid on $50k while you lived in SC. So you can't claim a credit on the NY return for SC tax on the same $50k. That's what's showing on IT-203.

NY   $50,000   $50,000

SC   $00,000   $50,000

Option 2 is generally better than Option 1. You can chose to file (1) as a Resident OR part-year resident filing as a resident or (2) as a Non-resident OR part-year resident filing as a non-resident

You can schedule a call and one of our Live Tax Experts can review your tax returns with you.

[TerboTaxer1011]

I am talking to a TurboTax Live Expert and they are saying that since I'm a part-year resident of NY and my income was taxed by another state, I am eligible to take this tax credit. I am extremely confused as to what the correct guidance is.

How can I file as a non-resident of South Carolina? Aren't a fully-bonified resident of South Carolina, if I'm not a resident of NY?

[ThomasM125]

Per the South Carolina Department of Revenue, you are a resident of South Carolina if you maintain your permanent home there, it is the center of you financial, social and family life and when you are away, you look to South Carolina as the place to which you intend to return:

So, New York would have no say in whether you are a resident of South Carolina. 

You can learn more about South Carolina residency status here:

https://dor.sc.gov/tax/individual-income/faq