State to State move . How bonus is taxed

What two states are you referring to? There might be some states that tax your bonus if it was sourced in their state.  

Generally, individuals are cash basis taxpayers.  A cash basis taxpayer is a taxpayer who reports income and deductions in the year that they are actually paid or received.

• You received your bonus February 2022 so your bonus is taxable in 2022 for both federal and state. 
• No, you don't owe state income tax to state 1 because you received the bonus in 2022 and you lived in state 2. You'll have to file a 2022 nonresident state income tax return for state 1 to get back the 60% state income tax that was withheld from your bonus (unless it's a state that taxes based on sourced income).

Thank you, HelenC12.  I moved from NJ to NC.

It can be taxable in both states. The key is where the source of that income is (where the employer is situated). However your resident state will give you credit for any state tax you are required to pay to another state on the same income.

For state 2, North Carolina.  This is your resident state when the money was received and therefore you must include it in full because you are required to report all of your worldwide income to your resident state. However, if the income must be reported on another state, then the resident state will give you credit for taxes paid on the same income.

New Jersey Rules: The state of New Jersey requires you to pay taxes if you are a resident or nonresident that receives income from a New Jersey source. 

The credit for taxes paid to another state on the same income is used on your resident state because they do not want you to pay taxes twice on the same income.  Complete the nonresident state return first then your resident state.  This will allow TurboTax to do most of the work for you.

The credit for tax paid to another state on the same income will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

@DianeW777 

I am in the same situation, but moved from IL to TN. The employer is headquartered in IL, but my work location and home location both changed to TN, effective January 1, 2022. The bonus payment was received in March 2022, based on work completed during 2021. Under IL rules, will I have to pay IL income tax, even though my office (same company) and home were both in TN when I received the bonus (March 2022)?

Thank you.

The income would be taxable in Illinois since it was sourced income from Illinois, as you were working there when you earned the income.

@jmo13151

Your answer is in direct contradiction of the one given above by HelenC12. If, as a cash basis, income is considered earned in the year it was received, why would it be considered earned in a location in which you resided the previous year?

States have different rules and the rules of one state don’t have to line up with the rules of another state.

Tax Expert @HelenC12 provided a very general explanation and said, “There might be some states that tax your bonus if it was sourced in their state” so there is no contradiction between her answer said those provided by other tax experts @purplejar.

Tax Experts @DianeW777 and @ThomasM125 responded to questions about how specific states handle bonus payments.

The reason a nonresident state would tax bonus income is because the bonus is due to work performed in the past. You did a good job in 2020 in your old state, so you were paid a bonus in 2021. Therefore the bonus is directly related to what you did in the old state. If you did a bad job, you would not have been paid a bonus. That's how some states think.

@ErnieS0  Is there a good way to learn how a particular state calculates tax in this bonus situation ("where work is performed from the prior tax year in another state")?

I have a similar issue where my 2023 received bonus was taxed by a state that was not my residential state (NJ) for a pandemic year in which I did not step foot in that state (worked totally remote from my residence state of NY, pre-pandemic would commute to NJ).

To complicate the situation I also switched roles for the same company in late 2022 and my tax reporting location switched back to NY from the NJ facility; in my prior experience monies are taxed based on where the material benefit is received (in this case NY vs NJ), but this bonus has me quite confused with its reference to NJ.

I feel knowing how this bonus tax from the nonresident state was calculated will help clarify what exactly is owed. Thank you for any assistance you can provide! 

If your bonus is considered to have been earned from a New Jersey (NJ) source you are required to file and pay tax to NJ. 

• Form NJ-1040NR if you had income from New Jersey sources for the part of the year you were a nonresident (use the link to see the instructions and tax rate schedules are on page 43.  This will allow you to see an approximate tax for the NJ return.  The income for NJ is divided by the income for the  year to arrive at the NJ amount. 
  • Instructions Form NJ-1040NR

Any money earned after the switch to the New York (NY) facility will be taxed only to NY.  You will receive credit for taxes paid to another state on your NY return for the tax paid to NJ on the same income. Always do the tax return for the nonresident state first.

The credit for taxes paid to another state on the same income is used on your resident state because they do not want you to pay taxes twice on the same income.  As the resident state all worldwide income must be included.

The credit for tax paid to another state on the same income will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

@JayHotspur  

I have the same situation with a move from VA to DC.

I lived in VA for half of 2021 and DC for half of 2021. I received a bonus from the year 2021 in 2022 while living in DC.

Should the bonus income be allocated 1) 50% VA and 50% DC or 2) fully to DC?

Thanks

While I'm not a tax professional at all, I can relate how my situation concluded.

I ended up getting a corrected W2 (c) form from my company, which removed the NJ tax. It took a while and was a big pain to get processed (corporate bureaucracy).

I think one of the factors that swayed things in my favor is that, due to the pandemic, I was never in the NJ office for tax year 2021 AND 2022 (just NY, work at home). I let 2021 slide and just paid the tax, but once they moved my official office in Dec 2021 I decided to fight it for this year's return.

Not sure how much that matches with your situation or if there's something special about VA/DC tax scenario, but I think a lot hinges on where work is performed and how much you want to fight it (since you probably will need a corrected W2 to get the money back from one of the states/territories). Good luck regardless!

Yes, the bonus should be allocated to the state where you performed the work that earned the bonus. Since that was 2021 and you were half in Virginia and half in DC, you will allocate 50% to each. 

1. First, please check My Info in the Federal return and be sure your address is listed as your DC address, DC is selected in the dropdown box for resident state, and the box is checked for Made money in another state
2. You will want to prepare your Non Resident return first, Virginia, and allocate income
3. Then your Resident return, DC, and allocate income
4. DC will then ask if you paid taxes in another state to give you credit so you are not double taxed on the same income. 
    

Similar situation: moved from NJ to FL in 2024. FL has no state tax while NJ does.  In 2025 got the bonus from my old NJ job and NJ tax was withheld. Obviously I will be filing 2025 taxes as a resident of FL and non NJ resident. Should I expect to get the NJ tax back or because the paying company is NJ based I have to pay NJ taxes even if I no longer live there?

thanks

NY has a rule by which someone who generally works in NY is treated as having work in NY on a day they work from home if they were working from home for the convenience of the employee. During the pandemic, NY took a pretty hard line and applied this rule even if people were "not supposed to" go into the office. Some aspects of this law are still making the rounds in court. NY has prevailed in prior cases although I expect there will be some pandemic related cases that will test the law further.

https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf

That may help although there have been court cases since then and this is a prepandemic rule.

I thought DC and VA have a recipricol agreement where they do not tax each others residents. And DC does not have a non resident return, so if one moved from DC to  VA, I do not know how DC would tax a bonus earned while a DC resident and paid while a VA resident. I do not think they have an accrual rule for moving out of the state, although I am not sure.

I would be interested in knowing about this more if anyone knows.

Thank you,

Yes, there is a reciprocal agreement between DC and VA. DC nonresidents can file a request for refund, D-40B - DC Office of Tax and Revenue.

@ELSCPA 

@ELSCPA --

According to this accounting website, non-residents of DC who have DC-source income must file DC Form D-40 if their DC-source income exceeds $12,550 (2024).

Do You Need to File a D-40 Tax Form as a Non-Resident? - Accounting Insights

I think that is incorrect. Here is the VA site regarding their reciprocity agreement with DC

https://www.tax.virginia.gov/reciprocity#:~:text=Virginia%20Residents%20who%3A,are%20exempt%20from%20taxation%20there.

VA will not tax DC income when you live in VA. DC taxation is not covered under VA law.

Your VA link states: Virginia Residents who:

• Work in the District of Columbia, but do not establish residency in Washington, D.C are exempt from taxation there. These Virginia residents will pay income taxes to Virginia. This applies to individual income tax only, not to the District of Columbia Unincorporated Business Franchise Tax.

Then we go straight to DC to read their rules here. You were a part year resident so you need to file part year with the DC income and part year with VA income. Between them, all of your income needs to be taxed.

If you were a nonresident, we could move to special circumstances and see it says: My employer withheld District of Columbia income tax, and I am not a resident of DC. Which form do I file to receive a refund?
Use Form D-40B, Non-Resident Request for Refund (available by visiting Tax Forms, Publications, and Resources).

@ELSCPA 

Hi,

For the record I am not a resident of DC or VA but I am just trying to understand how DC handles the flip side of the bonus situation someone brought up earlier. DC does not tax nonresidents to the best of my understanding, plus DC has a reciprocal agreement with  VA to not tax each others residents.

The situation I am thinking of is a 2023 DC resident (assume full year) who moved on 1/1/24 to VA. They were paid a bonus in early 2024 based on work performed during 2023. The work was performed while a DC resident and in DC. However, it was paid while the taxpayer was a VA resident.

Where I live, in NY, this bonus paid in the next year would be considered NY income to the extent the taxpayer worked in NY in the prior year, the year the bonus was earned. NY has no reciprocal agreements and has a nonresident tax form.

I think in the situation I mention, the 2023 earned, 2024 paid bonus is only taxed by VA, neither taxable or reportable in DC. If the employer were to withhold DC tax on the bonus income, taxpayer would file for a full refund. Do you not agree with this?

Separately, what is the DC employers responsibility for withholding. Are they required to withhold VA tax and are they allowed or required to not withhold DC tax, in this situation.

Thank you al!

@ELSCPA --

 "...if one moved from DC to  VA, I do not know how DC would tax a bonus earned while a DC resident and paid while a VA resident."

6. Who is considered to be a DC resident?
An individual is a DC resident if that individual (a) was domiciled in DC at any time during the taxable year or (b) maintained a place of abode in DC for a total of 183 days or more during the year at issue (also known as a “statutory resident”).  

https://otr.cfo.dc.gov/page/non-filer-faqs

DC residents file DC Form D-40, on which they report all their income.