Taxed while working from home in a no income tax state

[djSL]

Hello, 

I have a peculiar situation that I could use some expert help on. My wife physically worked in the state of Oregon (which has state income tax) for three months (March) of 2020, while residing in our home state of Washington (which has no state income tax). After three months, she was transitioned to permanent work from home for the remainder of the year.  However, her employer chose not to update her employment status until November of 2020. This resulted in the state of Oregon collecting income tax from her for 8 months, all while she never physically worked in Oregon and earned her income while working remotely in the no income tax state of Washington. 

As it stands, her employer refuses to correct her W2 and we're basically eating $2,000.00 in income tax to a state that should not have taxed her after March of 2020. Is there anything we can do to claim exemption from this? Hopefully, someone with experience in these two states can help?

[JotikaT2]

Oregon taxes nonresidents on any income from Oregon sources that exceeds the amounts in the link below.

Oregon nonresident filing requirement threshold amounts

If your gross income exceeds the amounts listed in the link based upon your filing status, you will need to file a nonresident tax return in Oregon as the income is from Oregon sources.  Even though your wife did not physically work within Oregon after March, since the employer reported the wages as being from Oregon sources, you will still need to file the nonresident tax return in Oregon.

If this is an error, and you are certain the wages should have been reported as being from Washington sources and not Oregon, you will need to confirm this with her employer to ensure they no longer report the state wages as being from Oregon sources.

[TomD8]

Oregon Rule 150-316-0165 excludes from taxation the income of a non-resident working from a location outside the state.  Therefore only the portion of your wife's earnings from the time she physically worked in OR are taxable by OR.  Submit a non-resident OR return allocating only that income to OR.  Any excess OR withholding will be refunded to you.

https://oregon.public.law/rules/oar_150-316-0165

[djSL]

We did start the filing process for a non-resident return. The issue is that her W2 reflects 8 months of Oregon income tax withholding versus the 3 months she physically worked in Oregon. That isn't something we can change.

This whole issue is due to her employer not adjusting her work status for 8 months after sending her to work from home. We've contacted her employer and they will not submit an amended W2, and advised we'd have to open a dispute with the state of Oregon. Seems like quite a few steps for something that was actually the employer's fault. Seeing as this is a rather large employer, I can only imagine how many people have found themselves in the same situation.

I personally know people (such as contractors) who work in both Oregon and Washington are able to deduct the hours worked in Washington and only pay income tax on the hours worked in Oregon. However, I see know way of doing that in turbo tax's software.

[TomD8]

You should be able to "allocate" the taxable portion of your wife's income to the OR return.  Yes, this will result in a discrepancy between your return and your W-2.  Some taxpayers in this situation print and mail their return, along with a note explaining the discrepancy.  

Needless to say, your situation is not uncommon in a year in which so many began to work from home.