NM part-year resident return not handling other state income allocation and tax credit properly

[NM1]

How do I make TT recognize which parts of the total federal income are coming from different states?

My daughter retained NM tax residency while doing a graduate degree in California (in CA only for educational purposes, no in-state tuition rate, lived on campus, drove our NM-registered car with her valid NM license, voted in NM, bank account in NM). She finished in summer 2025, moved to MA for a job, and officially became a resident there in mid-August. While a non-resident in CA, she received a fellowship reported on a W-2 with CA taxes withheld, and of course after she became a MA resident, she received pay with MA tax withheld on a W-2 from her employer there. After preparing her federal return in desktop TT on Windows, I prepared her CA 540NR, then her MA Form 1-NR/PY (part-year resident there too), and then finally her NM PIT-1.

NM taxes residents on their full income *while they are tax residents*, and in past years as a student the TT worksheets for NM have always offered me one for the PIT-B to apportion the income between NM and other states, and another worksheet to calculate the credit for taxes paid to CA (which goes on line 20 of the PIT-1). As a result, she only owed NM the difference between what the two states assess.

This year, even though TT knows that she was a CA non-resident, has the data in the completed CA 540NR, and knows the exact date she ceased to be a NM resident and became a MA one, it is giving me fits.

On the NM "Wages, Salaries, Tips" screen, it showed her total federal income for the whole year and then defaulted to deciding that $0 was taxable by NM, which is incorrect. So I specifically entered the amount of CA non-resident income as NM income, i.e. without the MA portion of the federal total (not taxable by NM). Despite this, TT does the NM return incorrectly in two ways:

1. On the PIT-1, it starts with the total federal income for 2025, but never adjusts for the fact that some of this, from MA, is *not* taxable by NM because she was no longer a NM resident when it was received.

2. The PIT-B shows a column for federal and a column for NM, but not one for the CA income. Then it completely skips over the credit for CA taxes paid, which is supposed to be calculated and entered on line 20, so it charges her the full amount of NM tax on that income. Nowhere in the Forms view is there a worksheet for the line 20 credit, and it is not attaching her CA return with the NM one, as required to support the credit.

How do I make TT understand that the NM-taxable income was from the CA return, so that the apportionment and credit for tax paid to CA can be handled properly? Is there a way to manually force it to generate the tax credit calculation worksheet? And why is it trying to tax her entire federal income when some of it is from after she moved to MA, and it was given the subset amount that NM should work with? This is very frustrating, and has not been a problem in previous years..

Thanks for any pointers.

[RogerD1]

I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below:

TurboTax Online:

1. Sign into your online account.
2. Locate the Tax Tools on the left-hand side of the screen.
3. A drop-down will appear. Select Tools
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token Number that was generated in the response.

TurboTax Desktop/Download Versions:

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent” *
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number  (including the dash) that was generated in the response.

*(If using a MAC, go to the menu at the top of the screen, select Help, then, “Send Tax File to Agent”)

[NM1]

@RogerD1 

[Edited to restore the token number, part of which the forum software decided was a phone number and replaced. So I have put spaces in between the digits of that part before the dash. Let me know if it isn't clear.]

Thank you so much for this. I have generated the file (was quicker than I expected). The token number is 1 3 4 7 6 6 2 1 7 5 -61309110. Note that I have tried a few different things to make TT do the right thing, most recently deleting the NM and MA state returns (leaving only federal and CA non-resident), then re-doing the NM one next (instead of MA). In theory that made it more like in previous years when there was no third state and it apportioned income/credited tax on the PIT-B properly. Unfortunately that experiment did not change anything. So I re-created MA as well, and the file again has all three states.

Section III of the Personal Worksheet (under federal paperwork) correctly shows the data I provided to TT for her state of residency on 12/31/2025 (MA). I also told it that she was a part-year resident there, along with the date of the change, and specified NM as the previous state of residency. This *ought* to make it treat her as a tax resident in NM for the first part of the year, but it seems like instead it considered her a non-resident, based on originally defaulting to 0 for NM income in the manual apportionment step of the questionnaire. It apparently didn't recognize that as being from CA. I'm not sure how it could, really, given that none of the income statements have anything to indicate *when* that income was received, only who paid it in what state, and maybe that's not enough for TT to figure out what to do with it. I did not see anything in either the questionnaire steps or the forms I looked at directly that allows me to associate income with dates.

The basic concepts of state residency and income apportionment are straightforward enough, but I realize that finding the cause and solution may be complicated. I *really* appreciate your help. If it turns out that a conversation is better, please let me know how to securely give you my phone number, or how to reach you. Thanks again.

[RogerD1]

I've done some in-depth research on your situation with your daughter's return and have come to the conclusion that the way that TurboTax is calculating the New Mexico income tax is correct.

The big difference from 2024 to 2025 for your daughter is likely that she was considered a resident of New Mexico in 2024 and can only be considered a part-year resident in 2025.  New Mexico requires a physical presence of 185 days in the state to qualify as a resident - since your daughter was away in California at school for part of the beginning of 2025, it seems unlikely that she would have had a physical presence of 185 days, so a part year resident status would be correct.  You may want to double-check to be sure though, because it could make a difference.

The difference is because the credit for taxes paid to other states is only for a New Mexico resident.  Part-year residents and non-resident are not able to take the credit.  The following is from the New Mexico PIT-1 instructions on page PIT-1-28:

"LINE 20. Credit for Taxes Paid to Another State A resident of New Mexico who must pay tax to another state on income that is also taxable in New Mexico may take a credit against New Mexico tax for tax paid to the other state. IMPORTANT: This credit is for tax that another state imposes on any part of income that by law is included in a New Mexico residents net income. When calculating the allowable credit, do not include tax withheld. If the specific item of income is not subject to taxation in both states, no credit is available. The credit may not be more than:

 • The New Mexico tax liability due on your PIT-1,

 • The tax you paid to the other state.

 • The amount of New Mexico income tax liability calculated on the part of income taxed in both states.

Complete the "Line 20. Worksheet for Computation of Allowable Credit for Taxes Paid to Other States by New Mexico Residents" on page PIT-1-31 You must attach all of the following to your PIT-1:

 • A copy of the worksheet(s), and

 • Income tax return(s) from the other state(s).

If you are not filing as a resident of New Mexico, income should be allocated using the Schedule PIT-B."

I did see the PIT-B worksheet in your return and it had only the California income allocated to New Mexico (and also some other income from investments).  The tax that is calculated is based on that income and, unfortunately, there is no credit available for taxes paid to other states for a part-year resident.

However, if you can show that your daughter qualified as a resident by being physically present in the state for 185 days or more, then all of her income from both states will be taxable, but the credits for taxes paid to other states would be available and that could potentially make a difference in the outcome that you are seeing.

[NM1]

@RogerD1 

Thanks for looking into this. I should perhaps clarify that our daughter was born and raised in NM. We continue to live here and our house has been her permanent address for the entirety of her academic training. All her CA income was a university fellowship, which of course ended when she graduated in the summer and subsequently moved to MA.

> New Mexico requires a physical presence of 185 days in the state to qualify as a resident 

For NM, residency is not based only on a simple 185 days/year presence test. It also depends on where the person is considered to be domiciled. Here's the relevant information about that; paragraph (3) is particularly relevant (from https://www.law.cornell.edu/regulations/new-mexico/N-M-Admin-Code-SS-3.3.1.9) :

"B. Part-year residents.

(1) An individual who is domiciled in New Mexico for part but not all of the taxable year, and who is physically present in New Mexico for fewer than 185 days, is a part-year resident.

  [...]

  (b) An individual domiciled in New Mexico who is physically present in New Mexico for fewer than 185 days and changes his domicile to a place outside this state with the bona fide intention of continuing to live permanently outside New Mexico, is not a resident for Income Tax Act purposes for periods after that change of domicile.

[...]

(3) No change in domicile results when an individual leaves the state if the individual's intent is to stay away only for a limited time, no matter how long, including:

 [...]

 (c) to accomplish a particular purpose, but does not intend to remain in the new location once the purpose is accomplished."  [In her case, the purpose was to complete her education, and she did not stay in CA after graduating.]

Paragraph 4 after the above goes on to detail the factors used by NM in determining domicile. She owns no real property herself, had no leases prior to moving, is single with no dependents, and her CA W-2 income was received while she attended university there, so items (a), (c), (d), and (f) are moot. (b) is covered by being a full-time student. (h) doesn't apply. The remaining items (e), (g), (i), (j), (k), (l), and (m) were all maintained consistent with NM being her domicile until she moved to MA. (Note that CA considers the same sort of factors in its residency test, and for the same reasons - as well as never using in-state tuition rates - she did *not* qualify as a CA tax resident at any time while she was a student there.)

So for the first part of the year, until the MA move date I provided in the personal information used by TT, she continued to be domiciled in NM. That makes her a NM resident for tax purposes for the part of the year before she moved to MA, which in turn means that the CA income received during that time is taxable by NM *and* that she qualifies for the credit for tax paid to CA on it.

Note: the allocation of CA income to NM that you see on the PIT-B in the file is only there because I put it there. TT defaulted to 0 during the walkthrough. Since that's not correct, I put in the amount shown on the CA W-2 plus a few small items she received during that period. I was expecting that TT would generate the forms I needed, which include the PIT-B, as it has in past years. I did not realize at that point that TT was treating her as a NM *non*-resident. Despite this, on the "State Taxes" tab, it correctly lists both NM and MA as "Part-Year Resident" and CA as "Non-Resident". So maybe instead it just doesn't understand where to put the CA income because there are no dates on it.

So how do I make TT recognize that she was in fact a NM tax resident due to domicile during the part of the year she was finishing her degree in CA? Or at least get it to generate the tax credit worksheet for Line 20 on the PIT-1 so I can do the calculations she's entitled to? Note that NM requires that a copy of the other state's tax return be included in the filing, to verify the income and tax claims. If TT refuses to do that correctly, can I do the credit calculations using NM's tax instructions, enter the result on line 20, e-file that, and then send the supporting worksheet and the CA return by mail after e-filing (or upload them to her NM taxpayer portal account online)?

I hope this isn't getting too much into the weeds. I appreciate your help. Next year she'll be doing her own, much simpler, tax returns! 😂

[RogerD1]

If you go back into your daughter's return in TurboTax, you can change her New Mexico residency status to Resident instead of Part-year resident.

The first thing you should do though is to delete her New Mexico return, then start over.

If you are using the Desktop version of TurboTax:

1. Go to the State Taxes tab, then click Continue.  The state returns will be on that page.
2. Click on File in the black banner at the top of the screen, then select Remove State Return.
3. From the pop up, highlight the New Mexico return, then click Remove.

For the online version of TurboTax:

1. Click State on the left side menu.
2. Click Go to state return.
3. On the "Status of your state returns screen, click the trashcan to the right of the New Mexico return.  Click Delete on the pop-up.
4. Click + Add another State and add back the New Mexico return.

Once you start the New Mexico return again, select Resident.

You'll get to a screen "Summary of Taxes Paid to Other States".  California will already be present and should be correct, but double-check it just to be sure.

Then click Add Another State on that screen and select Massachusetts from the drop-down.  On the Other State Information - Massachusetts screen, you will need to enter numbers in those fields.  The first box for Double taxed income is on Massachusetts Form 1-NR/PY line 12, the 2nd box is on line 25 and the 3rd box is on line 32a.  Once those numbers are put in to those fields, click Continue.  This will effectively give her credits for the taxes paid to other states that will be more than her New Mexico tax liability for that income and give her a zero balance due/refund for NM.

To access the information on the Massachusetts form in Desktop, click on Forms on the blue banner at the right.  Find the MA Form 1-NR/PY in the listing on the left and click on it.  For the online version of TurboTax:

1. Go to Tax Tools.  Select Tools right below Tax Tools.
2. Click on View Tax Summary in the Tools Center pop-up.
3. Click on MA Tax Summary on the left side menu
4. You'll need the Total 5% income number, the taxable 5% income number and the Total tax number for the NM credit for taxes paid to MA.
5. Once you are finished, click on Back on the left side menu to return to the input section.

[NM1]

@RogerD1 

OK, I'll give that a shot. Presumably the idea is that it will then look like past years, when there were just the two states, and generate the correct PIT-B and the tax credit worksheet for CA. Then I'll do the MA one as part-year and see how it handles that.

Note that the goal is not to reduce her NM tax liability to 0, because the NM tax brackets are different from CA and there's always a little bit left over that, as a resident, is due to NM. And that's fine.

But I can't file the package claiming she was a full-year NM resident, because she absolutely did establish domicile in MA when she moved there - driver's license, vehicle registration (we gifted it to her), registered to vote there, etc. etc. So I'll have to see what happens if, at the end, I go in and change the NM residency to P instead of R. Hopefully it will keep the CA apportionment and tax credit. I'll let you know.

Thanks again.

[NM1]

OK, so that did what you described. When I set her NM residency status to full-year, TurboTax did indeed generate the worksheet to calculate the credit for tax paid to CA. It also required (rightly if that were truly the situation) that the PIT-B calculation use the full amount of her total federal income. This of course includes income from MA when she was officially domiciled there, and not domiciled in NM any longer (relinquished NM license, changed voter reg., etc.). And yes, TT produced a second worksheet for the MA tax credit which calculated enough to zero out NM's claim to any.

But I can't actually use the suggested workaround for filing her tax returns, because I'd have to lie about her NM residency status to achieve this. She was not in fact domiciled for tax purposes in NM for the full year, and since both other states' returns have to be attached to the NM return to support the credit amounts claimed, the NM TRD will see that overlapping-domicile discrepancy (because the MA one has to be part-year resident). I have no idea what they might do about it, but it is a crime to knowingly submit a false return.

After trying the above, I changed her NM status back to part-year residency to see what would happen. The result was the same as before: TT kept the PIT-B and allowed allocation of only part of the total federal income to NM, but it deleted *both* credit worksheets. This is the heart of the problem, because the instructions for line 20 on the PIT-1 form itself say,

"Credit for taxes paid to another state. You must have been a New Mexico resident during all or part of the year. Include a copy of other state's return."

NM does allow this credit for double-taxed income received during the period that the taxpayer was a NM resident, even if that was only part of the year. Therefore TT *should* still generate the appropriate credit worksheet - preferably automatically, but at least ask if it's needed and/or for which state/time period. It does nothing of the sort, and apparently there's no way to tell it to provide one. The bottom line is that this is definitely a bug in the way TT is handling part-year NM residents that is contrary to NM's instructions. 

So how do I get this return into a condition where I can file it with the correct information *and* get the credit for CA tax that NM says she's entitled to? 

Thank you very much.

[NM1]

Something weird happened today with this. Even though I had not made any further changes, and the update check in TT today didn't show that any were applied, when I opened this return, it showed a different final tax number for NM. The walkthrough still showed full-year resident for NM, so I tried changing her status to Part-Year again, and this time it retained the out-of-state tax credit worksheets for NM. Previously it had removed them when I did that.

So then I was able to walk through again and have it put the right numbers for income taxable in NM (i.e. the CA income received before she graduated and moved), and delete the MA tax credit worksheet since that wasn't applicable. And that cleared it up. It used the PIT-B to calculate the total tax and the percentage of the total federal income that was allocable to NM, and applied the appropriate credit. 

I don't pretend to understand this, because what it produced when I opened it today was not the same as when I had exited the program yesterday. But the results looked right, so after checking NM thoroughly and doing a quick review of the others, we e-filed all the returns before TT could change its mind. 😉

I had figured out that if it didn't work properly, we could file it with excess tax due, and then amend it by uploading the correct PIT-B and worksheets (calculated manually) to the NM taxpayer portal. But that would have been a pain. NM takes a bit longer to issue e-file acceptance. Not sure I dare hope that this worked . . .

@RogerD1  I do appreciate that you took the time to look through the diagnostic file and make suggestions. I guess something in those changes must have triggered a subsequent change when it re-opened the file again today? It's odd, and more than a little frustrating since I mucked around with this for hours yesterday without apparent success, but if it has the desired result I'll take it. Thank you.

[NM1]

Aaaaaaand all accepted - yay! Thanks again.