Hi,
I have a few questions relating to our tax situation. It has been really confusing, so hoping you could help me here.
We (my wife and I) have been living in MA since 2020. But last summer, I got an internship in TX, so we moved to TX in May and stayed there until Aug and then moved back to MA. So how does my tax reporting work? Should I pay taxes for TX income in MA? (given that TX has no income tax, nothing to report in TX)
Secondly, my wife is a remote worker. So when we moved from MA to TX, her work changed her official location to TX which also meant change in salary, taxes etc. So some of her income is reported in TX. Do we have to pay taxes for this TX income in MA?
Third, do we also file for taxes in TX? We may have some dividend income, capital gain or loss from stock trading during our time in TX on top of the income. Does this income have to be reported in MA or TX?
Lastly, I converted my 401(k) to IRA while living in Texas but then converted it into Roth IRA when we were back in MA. When paying taxes for conversion, do we consider TX or MA? Does it matter where we lived when we rolled over or converted?
For reference, I am using TurboTax Premier desktop version. Got the desktop version thinking it would be easy to work through given our complex situation.
Thank you!
When you moved to TX, was the intention always to move back to MA? If it was always intended to be temporary, then you would be considered a full-year resident of MA for tax purposes. Ordinarily, you would have to file a nonresident return for the state that you lived and worked in, even if temporarily. However, as you said, Texas does not have an income tax so you do not have to worry about that. If you are a full-year resident of MA, they get to tax all your income, including the portion that was earned while in Texas.
If you thought the move might be permanent, did you take any other measures to establish Texas residency? Did you ever get a TX driver's license, bank account, permanent address, or anything else that would indicate an intent to be a resident there? Did you give up your Massachusetts home? If so, then you could make a case for being a resident in Texas for those months, in which case you would not have to report any income to Massachusetts for those months. The fact that you were only there for three months does not mean you definitely didn't establish residency, but it doesn't help your case. You would have to be able to document that claim if Massachusetts were to question it.
Either way, since you converted the IRA to a Roth while you were in MA, you would owe MA taxes on the conversion.
Thank you for the detailed reply, @RaifH ! That was very clear and helpful. We will file as full year MA resident as our move was just for the summer and plan was always to come back to MA.
Couple of follow up questions.
1. Given that we will be considered residents of MA, do owe any taxes on capital gains and dividend tax to TX for the portion we received when we were in TX?
2. Just curious, if I had converted my IRA to Roth in TX, would that have changed who we paid taxes to?
Thank you
Nope, you are good with the one state tax return. MA will tax all of your income, even the income earned in TX - but Texas does not have any state income tax, and unless they enact one, you don't report any income to the state of Texas. You are considered full-year residents of MA as long as you keep a home there and intend on going back after any temporary assignment. If TX had an income tax, your wife's TX earned income would be taxed there as a non-resident. But they don't, so less paperwork for you. 😉