MN: Non Resident Partial Year Income

[Connor42]

I am a full-time resident in Wisconsin, who earns income in Minnesota and files for income taxes in both states every year.

Due to Covid-19 and full-time working from home, my employer (in MN) adjusted my taxable income to MN as a partial year (January-March) and adjusted my taxable income to WI (January-December) on my W-2. However, when using TurboTax to file MN state income tax, the calculated taxable income is 75% of my federal taxable income.

Its almost as if the software can't handle the edge case of earning income in a state as a non resident partially in a year (January-March), as my MN taxable income should be AT MOST 25% of my federal taxable income, not 75%.

How do I fix the calculated taxable income for MN to be the appropriate amount (25% of my federally taxable income), or am I missing something here?

[JohnB5677]

I would like for you to check your W-2.

• In box 15 next to MN, what is the amount in box 16 (State wages)
• Based on what you've said this should equal 25% of your earnings
• And the WI should show 100%.

If the W-2 is incorrect you will have to resolve it with your employer.

If the W-2 is correct and it was posted correctly, I expect that there is a mis-posting in the state portion of the interview.  I suggest going through MN first and confirming that the questions regarding income are correctly answered

[Connor42]

Hello John,

Appreciate the quick reply!

I have confirmed that my W-2 is correct and it has to be an either an improper calculation on TurboTax or Minnesota state income tax forms don't properly account for this type of situation. 

In box 15 next to MN, box 16 is approximately 33% of earned income from box 1 on my W-2 or approximately 25% of my federal taxable income.

In box 15 next to WI, box 16 is approximately 100% of earned income from box 1 on my W-2 or approximately 80% of my federal taxable income.

I have re-done the MN questions within the TurboTax MN interview and even went to the forms for MN (Form M1 and Schedule M1NR) to validate everything was entered correctly from my W2-.

On line 9 of the MN taxable income is approximately 75% of my federally taxable income on the M1 Form. Even though on the Income Allocations part of the interview, I have entered the correct amount from box 16 next to MN in box 15 (I have validated this multiple times). 

Again, as a non-resident of MN, I don't qualify for any of the deductions or credits and skip these sections of the interview.

However, on the Taxes and Credits Summary page has a Minnesota Taxable Income amount that is 75% of my federal taxable income or 90% of my earned income from box 1 of my W-2.

Any advice you have would be greatly appreciated.

[AmyC]

That sounds right up to the change in income on line 13. The MN return begins with your federal income and makes adjustments. Your MN taxable income, line 9, is a big number as is the tax liability on line 10. If you keep going, you will see line 13 shows your actual income vs total. This creates the percentage to calculate your actual tax liability, on line 13. For your reference, MN, $10,000 income would have $538 tax liability.

See How do I preview my TurboTax Online return before filing?

In addition, your MN must be complete and accurate before you begin your WI return. Your resident state taxes all income but gives a credit for income taxed by another state.  Please carefully follow these directions.

You will need to prepare the states in a special order. You may need to delete both states and begin again.

1. First, prepare your non-resident  return. This creates your tax liability for the non-resident state. How do I file a nonresident state return?
2. THEN prepare your resident state return and it will generate a credit for your income already being taxed in the non-resident state.
3. The credit will be the lower of the state tax liabilities on the same income. You may owe your resident state.

It isn't possible for the program to create a credit before it knows the liability. Your returns may be wrong if you do not prepare the states in this order.