Live in NJ but pay NC income taxes W-2

[goro10]

I accepted offer to move to NC from NJ for work earlier this year however it didn't work out. I'm still employed by the same employer holding same position but starting May this year I pay NC income tax but never moved there. What should be my concerns/considerations when filing taxes? I always did taxes myself since I always had simple returns, however I'm thinking maybe better idea to hire pro this time. 

[rjs]

Your first concern should be to tell the payroll department that you work in New Jersey, not in North Carolina, and they should stop withholding NC tax and start (or resume) withholding NJ tax. Make sure they correct the withholding before the end of this year (2022), so that you do not have a problem next year (2023).

The details of exactly what else you should do, and what you should say to your employer, depend on some information that you have not provided.

• Did you work in NC at all, even for a short time, when you thought you were going to move?
• Do you work in your employer's office in New Jersey, or are you telecommuting (working remotely) to NC? Was it the same arrangement before you accepted the offer to relocate?

[goro10]

I hold an engineering job. I do not have office, I work remote with occasional travel for projects. Before accepting the offer to move to NC I had been supporting Tri State area locations. With the move I would have had the same job but occasional travel in South region. Due to personal circumstances I could not move, and the employer gave me time until end of the year if it works out....but it doesn't. So since May I've been supporting NC and other southern locations as well as Tri-State. However like mentioned, I pay NC income tax, but live in NJ. 

Starting next year the plan is to "bring me back" to support tri state only.

[rjs]

You didn't answer my question about whether you worked in NC at all in 2022. I will assume that you did not. If that assumption is wrong, and you actually did work in NC, even for a short time, then much of the following needs to be modified.

Since you are a full-year resident of New Jersey, all of your income is subject to NJ tax, no matter where the income is from. Any income that you earn for working in another state is also subject to tax by the state that you worked in. If you worked only in NJ, none of your income is subject to tax by NC or any other state. The fact that your employer is located in NC does not make you subject to NC tax if you did not actually work in NC.

Note that the tax withheld from your pay is not the final amount of tax that you pay. Your final tax is calculated on your tax return after the end of the year. The withholding is an advance payment towards your actual total tax for the year. If the withholding is more than your actual tax, you get a refund of the excess when you file your tax return. If the withholding is less than your actual tax, you have to pay the difference when you file your tax return.

If you live and work in NJ all year, and do not work in NC at all, your employer should not be withholding NC tax. They should be withholding NJ tax. The ideal solution would be to get your employer to correct the erroneous withholding before the end of the year. Then your W-2 would show all your wages as NJ wages, with NJ tax withheld, and no NC income or NC tax withheld. They can make this correction, but they might tell you that they can't, either because they don't think that they can do it or because they don't want to bother. If they do make the correction, you will simply file a NJ resident tax return.

If they will not correct their error, you would have to file a NC nonresident tax return showing zero NC income in order to get a refund of the NC tax that was mistakenly withheld. The problem with that is that your W-2 will show NC wages, so you will get a letter from the NC Department of Revenue saying that your NC tax return is incorrect and you do have to pay NC tax. You would then have to try to convince the DOR that the W-2 is wrong, and you did not actually earn any income in NC. It would be a big help if you could get a letter from your employer saying that the W-2 is
wrong and you did not work in NC.

Again, I have assumed that you worked only in NJ and did not work in NC at all. If that assumption is wrong, and you actually did work in NC, even for a short time, then much of what I wrote above needs to be modified.

If you traveled to other states, technically your employer should be keeping track of which states you worked in, and how many days you worked in each state. Your W-2 should then show the amount that you earned in each state, and you would have to file a nonresident tax return in each state that you worked in. But in practical terms, if you spent only a few days in each state it might not be worth the trouble for either you or your employer. The amount of tax that you would have to pay to each state would be very small, or possibly zero.

[goro10]

I went down to NC once for a week to check the place out, that's all. 

On paper I do report and support to South team.

I can inquire but I really doubt my employer will revise W-2...I don't know.

So if they don't, my understanding it would be better to use tax expert when I file the taxes?

[rjs · Accepted solution]

It doesn't matter whom you report to or whom you support. Those may be organizational or budgetary considerations for the company, but they have nothing to do with income tax. As far as taxes are concerned, all that matters is what state you actually sat in when you were working, and what state you lived in.

If you got paid for the week in North Carolina, that pay is NC income and you have to pay NC tax on it. So you will have to file a NC nonresident tax return and a NJ resident tax return. You will get a credit on your NJ return for part or all of the tax that you pay to NC. Your W-2 should have two lines of state information - a line for NC showing one week's pay, and a line for NJ showing (roughly) 51 weeks' pay. You will pay NJ tax on your NJ income, which is most of your income for the year.

If your employer will not correct the W-2, you will still have the problem that the NC income shown on your W-2 is much higher than your actual NC income. If it's likely that you will end up in that situation, it probably would be a good idea to get help from a tax professional. You should go to a tax pro now, just in case there is any chance of getting corrections made before the end of the year. Also, tax professionals are not especially busy at this time of year, and going now will give the tax pro time to work on your situation.

If the employer does not retroactively correct your withholding, the NJ tax withheld on your W-2 will be much less than your actual NJ tax. That means you might have to pay a penalty for not having had enough tax withheld. The tax pro will be able to help you with strategies to possibly reduce the penalty.

And again, it's very important to get your employer to stop withholding NC tax and start withholding NJ tax going forward. A tax professional can help you with this as well. There should be no problem making that change, and you need to get it changed so that you don't have the same problem for 2023.