We moved to WA from AZ during this year and plan to live in WA. Now, my husband is working remotely in WA for the same company in AZ. My questions are:
1. The AZ company continues withdrawing tax in W-2. and I heard WA has no state tax. Do we only need to pay tax to AZ for the months we live in AZ? or pay AZ tax for the whole year?
2. If we only pay tax for the months live in AZ, how to end the AZ company continue withdrawing tax in W-2? Thank you.
You will prepare and file a part-year AZ tax return for the time that you lived and worked in AZ. WA has no state income tax so you will not file a WA return.
As for the employer -- that is a conversation to have with HR or the payroll office to have them stop withholding AZ tax going forward.
Your husband must continue to pay Arizona state income tax on "Arizona source income", even after moving out of state. The source of wage income is usually the state where your permanent residence is located when the income is paid, so just working for an Arizona company after your move will not make it Arizona-sourced. However, if your spouse returns to Arizona from time to time (such as for training, or mandatory on-site meetings) then any income earned while physically living or working in Arizona, even temporarily, will be considered Arizona sourced. Other common Arizona source income might include rental income (if you rented your Arizona home after moving out), or the capital gains from the sale of your Arizona home (if you sold it after you established your new permanent residence in Washington). Other income like investments or interest is only taxed in Arizona if it is paid while you live in Arizona. If you have investments, you will have to carefully review your statements to see how much of the interest, dividends and capital gains were paid before you moved.
When preparing your tax return, you will have to manually allocate your income between the states, Turbotax can't guess.
If the company will allow it, he can stop his Arizona withholding. If the company won't allow it, he will get a tax refund when he files an Arizona return showing an excess of withholding over tax owed.
If you wish, you can submit AZ Form A-4 to your AZ employer with Box 2 checked, in order to stop the AZ withholding.
AZ requires employers to withhold AZ taxes only on wages earned from work done in Arizona.
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