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Why is Turbo Tax incorrectly calculating my State income taxes? RESOLVED

I live in NC, and work in SC. My wife lives in NC with me, and also works in NC. We are married filing jointly. I imported both of our W-2s directly.

 

In my situation, taxes are typically collected in SC, the State I work in, and offset by credits to NC, so that my income is not taxed twice. Apparently this is not calculated correctly in the newest version of the Turbotax application. SC has already collected about $8K in State taxes through my payroll, which should be more than my tax obligation. However, Turbotax is indicating that I owe taxes to both NC and SC, a smaller amount to NC, and about $5K to SC.  This is obviously wrong, as it would make my tax rate in SC about 15%, which is more than the maximum. What is going on?

 

Edit: I figured out what the issue was. TurboTax incorrectly credited the taxes collected on my W-2, to the wrong State when importing.  Comparing what was imported, to a copy of my W-2 showed the error. This is a huge gotcha, and should be fixed.

 

You can manually fix this by:

 

  Clicking on the 'Wages & Income' tab at the top of the page, then the 'I'll choose what to work on' button. This will bring you to a different screen.

 

Then under the 'Wages and Salaries Form W-2' heading click the Update button on the right hand side. This will show you which W-2s were imported.

 

Click edit on the right hand side for whichever W-2, and you can update the fields manually.

 

 

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2 Replies
DavidD66
Expert Alumni

Why is Turbo Tax incorrectly calculating my State income taxes? RESOLVED

To properly calculate your state taxes in TurboTax when living in one state and working in another, you should first prepare your out of state tax return (South Carolina, in your case) and then prepare your resident state (North Carolina in your case).  North Carolina will tax you on 100% of you income, regardless of what state you earned it in.  South Carolina will tax you on your income earned in South Carolina.  North Carolina will give you a credit for the tax you pay to South Carolina (or any other state) so that you are not subjected to double taxation..

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Why is Turbo Tax incorrectly calculating my State income taxes? RESOLVED

I also suspect you may not have run thru all the SC nonresident Q&A yet.  While you are preparing your Federal tax return, the SC tax return assumes most of your combined income is SC-taxable.   

 

BUT, after your Federal section is fully filled in  (every scrap), you'll go thru the SC Q&A and need to indicate what sub-portion of the Federal $$ are also SC $$.  For you, that's likely only your SC wages.

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