My income on my w2 is split between 2 different states even though I earned it all in one state….. why?

[tdls93]

I live in Illinois and work in Iowa. On my w2 roughly 2/3 of my income is written down as Illinois state wages and the other 1/3 is written down as Iowa state wages. I’m confused on why this split is happening or how it was determined? I also owe SIGNIFICANTLY more in taxes than I anticipated and can’t figure out why because nothing on my w2 indicates that I should owe that much.

[JamesG1]

It sounds like your state withholdings were not assessed correctly by your employer.  Was there a change in payroll services or a change in payroll systems in 2024?

Iowa and Illinois have a reciprocal agreement for individual income tax purposes. Any wages or salary made by an Illinois resident working in Iowa is taxable only to Illinois and not to Iowa.

You will file an Iowa nonresident state income tax return to receive a refund of taxes that were withheld to Iowa.

You will file an Illinois resident state income tax return but you will have a balance due.  Enclose a letter to Illinois asking for 60-90 days to pay the balance due.  Hopefully, that will be enough time for the Iowa refund to be received.

[John_is_old]

I had a similar case for tax year 2024. I have heard that remote work (with employer in another state) can trigger this. However, my situation is/was "trailing tax liability", after I moved from one state to another. This can happen when income realized in 2024 is linked to a prior year's work in another state, e.g., if your employer grants equity (RSRs, etc.) that vest after the year of the initial grant.

PLEASE NOTE that, for me, I could claim a credit in my state of residence for the full amount owed in the other state. For Illinois residents, see...

2024 IL-1040 Schedule CR Instructions

Hope this helps, John

[tdls93]

it’s interesting you say this because I did move from California to Illinois this year. However, I had a different job in California and did not live there at the time I worked at this job (though I was hired remotely).