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bswanston1993
Returning Member

Why does my North Carolina tax return say my NC taxable income is more than my fed. adjusted gross income? (I was self-employed NC resident for most 2020, I owe NC taxes)

Line 13 of my D-400 says part-year residents and nonresidents taxable percentage is 1.6292. So my return multiplies my income AFTER deductions by 1.6292 to give me my NC taxable income, which is significantly higher than my total income for 2020, and uses that number to determine the state income tax I owe.
6 Replies
SteamTrain
Level 15

Why does my North Carolina tax return say my NC taxable income is more than my fed. adjusted gross income? (I was self-employed NC resident for most 2020, I owe NC taxes)

Hard to know without seeing what you did.

 

Go thru the NC income allocation interview again, you probably put a  bunch of $$ in the column for "NC Income While Nonresident" .   That column should be mostly zero's.  You only put $$ in that column form money you earned in NC while you were living in the other state.....thus all dividends and interest would be zeros in that column.

.......and any self-employment income for working in NC while actually living in the other state....so if you didn't work in NC before moving there?  then that would be a zero too in the NC income while nonresident column.

 

....the total on  any one line for the two columns should not exceed the total displayed in the Federal column.

 

BUT...I am just guessing at what you might have entered wrong..

*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
bswanston1993
Returning Member

Why does my North Carolina tax return say my NC taxable income is more than my fed. adjusted gross income? (I was self-employed NC resident for most 2020, I owe NC taxes)

@SteamTrain Thank you, and apologies for my sparse information. I was trying to avoid including any personal info, but it's tough to provide enough context without it.

 

My "Part-Year Resident Income Allocations" page is as you suggested -- all 0s in the "North Carolina Income While Nonresident" column.

 

However, I believe the section that messed things up was "Wages Allocation." This page prompts: "Enter the code to indicate the status of the following wages. Choose 'Not NC Source Income' if the income was not earned while a resident, and/or not from an NC source."

 

The rest of the page lists my wages (two W-2s and two 1099s) and asks me to designate each as either "NC Resident Income," "NR NC Source Income," "PY NC Source Income," or "Not NC Source Income." There is no key to help me understand what each option means. I earned the income reported on both of my 1099s and one of my W-2s while I was a resident of North Carolina, so I designated each of those as "NC Resident Income." But then the taxable percentage of my income ends up being more than 100%. That shouldn't be possible, should it?

If I leave the designations blank for each of my income sources, my taxes owed cuts in half. So confusing.

SteamTrain
Level 15

Why does my North Carolina tax return say my NC taxable income is more than my fed. adjusted gross income? (I was self-employed NC resident for most 2020, I owe NC taxes)

Nope, should not be over 100%

 

I tried Adding in another W-2 and two  1099-R's in my desktop software.....and didn't get that.....(but I can't see what the Online software is doing for that situation)

 

My wages allocations for W-2's were

1)  One W-2...all as NC Resident income

2)  second W-2 from NY employer, the box was split into two lines. The box 16 amount from the real W-2 is split as-if:

......2a)  The NY-amount before move to NC as Not NC source income

.......2b)   The remaining amount as PY-NC Source Income

Run thru the NC  income allocations again...and make sure the totals of 2a and 2b = the real box 16 $$.

___________________

On the next page, which shows the 1099-R data?

WAIT....or were those not 1099-R forms?...some other 1099 forms you need to define?

IF 1099-R forms, did you take & keep the $$ or roll over?   It matters.  might also matter if they were COVID withdraws when entered in the Federal section that were to be spread over 3 years.

*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
SteamTrain
Level 15

Why does my North Carolina tax return say my NC taxable income is more than my fed. adjusted gross income? (I was self-employed NC resident for most 2020, I owe NC taxes)

Another thing own the W-2 wages allocation page.

 

When you break down the NY employer W-2 amounts into two lines, the $$ may reset on you.  Get both lines in and re-enter those numbers and click in another box to make sure they stay .    Mine reset on me until I got both lines in for that W-2.   (But maybe the Online software won't let you break down that one W-2 into two lines.  Desktop allows it. )

 

AND don't create two state lines in the software Federal W-2 area, on the as-entered W-2 form itself....this  is only done in the NC interview during that W-2 allocation section.

 

 

*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
SteamTrain
Level 15

Why does my North Carolina tax return say my NC taxable income is more than my fed. adjusted gross income? (I was self-employed NC resident for most 2020, I owe NC taxes)

I fooled around with the Online software for doing the W-2 allocation. And I di have to go thru the NC W-2 allocation page again.....and the second time thru the numbers kept when I revisited.

 

SO.....It does appear to keep the NY W-2 split, In A Way ....BUT in part 1 of the actual paper form printout from "Online" software, the part that shows the W-2 split up, it does not keep properly and shows more than the-total W-2 income ....part 2 of that form did show the proper amount of NC wages though in my test...ahhhhh, so there is a mismatch in the NC Online software for that worksheet page.  The Proper NC income from the "Interview" seems to transfer OK to Part 2 in my test...but I'm not sure you can trust that it will remain so thru actual filing final filing steps.  (And you do have to go thru the NC error checks to set some zero's that don't seem to be handled during the allocations).

_______________________

What to do.?

 

Get the Desktop software and hope it woks better for you....or bite the bullet and go to a local professional to file this year (not a seasonal storefront though).   IF you stay in NC, next year's taxes would be easier, even fi you continue to work remotely for the NY employer....since none of the PY-NR allocation forms would be needed.

 

IT's true I'm not a professional tax preparer...I've used and worked thru the nuts and bolts of the TTX NC software for18 years now, and know it pretty well, but I can be fallible in many ways.

 

*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
bswanston1993
Returning Member

Why does my North Carolina tax return say my NC taxable income is more than my fed. adjusted gross income? (I was self-employed NC resident for most 2020, I owe NC taxes)

@SteamTrain Thank you so much for taking the time to experiment with this and come up with an answer for me! I've been pulling my hair out.

 

I have two W-2s, one 1099-MISC, and one 1099-NEC. I paid my TurboTax fee and printed my return (did not mail it) before noticing this error, so TurboTax will not let me start over on my state returns. I'll go through the process from a different TTX account on the desktop software to see if I yield different results after inputting my information in a more careful order. Otherwise, yep, might have to hire an actual human to help me out with this. (Super frustrating since I already paid my TTX fee... you'd think the software would have flagged that my taxable income was somehow 162% of my gross income in reviewing my NC state return, but I digress.)

 

I moved from North Carolina to California last year, so this will be my last time filing in North Carolina. I look forward to leaving this part-year resident messiness behind me.

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