PA resident working for a Kentucky company

[krash16_]

Hi,

I would appreciate some advice on how to fill W4 for both and whether to file return jointly or separately with spouse. If filed jointly how is out of state income credited in home state?

Me: income:155k, living in PA, working in KY

Wife: income:59K, living and working in PA

Best regards

[NCperson]

@krash16_  

this is for the State return: 

you will file as a non-resident in KY and it will only assess YOUR KY earned income....

when you jointly complete the PA return, you will get a credit for the taxes paid to KY so that your are not paying taxes twice on the same dollar of income. 

As far as federal tax return, the IRS doesn't care about working in one state and living in another.... fille out the W-4 as you would as if you worked in PA. 

and just to confirm - because in this virtual world, this confuses many -  you are PHYSICALLY working in KY, right?  it's not a situation where you are physically working in PA but the company is located in KY. 

[krash16_]

thanks for the clarification @NCperson 

As to your question, I am physically present in PA and working remotely for the KY based company. The company mentioned I would need to visit KY some times in a year just to meet the team, but the majority of work will be done whilst I am physically present in PA. 

I have some follow up questions. I just moved to the US so all this is new for me. As to the filling of W4, as I have the higher paying job, I was thinking of filling section 4(c) for extra withholding based on the tables for my W4 and will leave my spouses w4 empty apart from personal info.

Is my understanding correct that we will jointly file in PA stating both of our incomes earned and I will have the taxes paid in KY credited. Actually it seems for PA credit I can only credit the lower tax liable amongst the home and other state. As PA has lower taxes I guess I will be able to credit the complete PA tax that I would have to pay for my income? Thanks

[NCperson]

@krash16_ - let's go back and start over.... you pay state tax based on where you PHYSICALLY live and PHYSICALLY work.  The fact that your employer is in KY does not matter.  So you will have PA taxes withheld from your paycheck and only file PA state taxes.  

the W-4 is for FEDERAL tax withholdings.  Use this tool to help determine how much to withhold for FEDERAL taxes 

https://www.irs.gov/individuals/tax-withholding-estimator

[krash16_]

@NCperson thanks again.

I now fear I will be double taxed. I cannot find any information about Kentucky taxation for remote workers. So KY has no reciprocity agreement with PA so not sure how I can claim exemption in KY. Any ideas?

[NCperson]

@krash16_ 

1)  on your paycheck, what states are withholding taxes?

you won't be double taxed; it will work out at the end of the year.  respond to my question and I'll explain. 

[krash16_]

@NCperson 

I just accepted the offer but will start working in some weeks. Just trying to figure possible issues in advance 

[NCperson]

@krash16_ 

1) check with your Payroll department that they will ONLY be withholding PA state income tax and NOT KY state income tax.

Based on what you have stated, that is the way it should work. They should know to withhold where you work and you do not work in KY.

you won't be double taxed.  

[krash16_]

@NCperson 

I still have to clarify with payroll but they already sent me a KY K4 withholding certificate as standard onboarding and it seems based on  that I am not eligible for KY tax exemption for PA residency. However this again could be for physical commute to KY. Not sure of payroll would be able to disregard this and just withhold PA taxes as you state. K4 link:https://revenue.ky.gov/Forms/42A804%20(K-4)%20(2022)(11-21).pdf

[NCperson]

@krash16_ - it may be as simple as they are not used to having employees working in another state and a clerk sent you the wrong form.   

Based on what you have posted, Payroll should be withholding PA state taxes and not KY state taxes.  Suggest getting that clarified before you sign that KY W-4 form.  You are living and working in PA and will owe them state income tax.  You are not working or living in KY and will not owe them state income tax. 

[krash16_]

@NCperson , thx will clarify and report back 

[Hal_Al]

I agree with NCperson, you want to avoid filling out a KY K4, if you can.  If your employer withholds KY tax, you'll have to file a nonresident return for a refund every year.  If they are unwilling to withhold PA tax, you'll have to make estimated payments to PA or have your spouse increase her PA withholding to cover you. 

 You said "The company mentioned I would need to visit KY some times in a year".  That prompts the question: will you need to pay KY tax on your salary for those days. Yes, but "nobody" does. See http://money.cnn.com/2013/06/28/pf/taxes/business-traveler-tax-threat/  

If your employer does  withhold KY tax, then yes.  You'll need to allocate days, when you file for a KY refund. PA will give you a credit for the little KY tax you end up paying.