Pennsylvania Resident earning 1099-NEC money from Virginia

[andybrucenet]

I am a PA resident and I earned 2021 1099-NEC business income from Virginia (large amount) and Maryland (small amount - $900).

TurboTax instructed me to file a Virginia 763-S (non-resident who owes zero) and that I owed zero to Virginia for 2021. TurboTax did not prompt me about any Maryland filing.

PA of course has reciprocity with VA and MD. However - it's pretty clear that reciprocity is only for wages and salaries and the VA instructions clearly indicate that 1099-NEC is *business income* not wages.

I had the same situation in 2020 and I filed the same 763-S with VA and nothing with MD. Virginia received the 763-S and other than telling me I had to refile with a copy of my PA return (to prove I paid taxes, I guess) - Virginia seemed perfectly happy with me claiming zero tax due.

So my two questions:

1) Since I earned 1099-NEC business income in Virginia but I live in Pennsylvania - am I correct to file the 763-S to Virginia with the "zero tax due"? Or should I file the standard Virginia non-resident form and pay taxes on the 1099-NEC business income earned in Virginia?

2) Do I need to file anything with Maryland?

If I owe the money to the other states then I guess I owe the money and I'll have to amend 2020 return and pay for 2021. But I do need to know.

Thanks!

[DianeW777]

No, you probably don't need to file Form 763-S.  That form is for claiming mistaken Virginia (VA) withholdings, either because you live in a reciprocal state or you are a Military Spouse not considered a Virginia resident for tax purposes.  However, there's no reason to file that form if you had no VA tax withheld from your income.

No, a Maryland (MD) return is not required. Maryland Nonresident Instructions show that if you income from MD sources is below the minimum filing levels a return is not required. See the table on page 2 when you click the link. 

[andybrucenet]

Thanks Diane! From another thread I gleaned that I'd owe $$ to Virginia only if the business incomes was "sourced" in Virginia.

I work 100% remote and the only time I'm in VA are for client meetings (and I deduct those miles!) So I think TurboTax (and you) are correct that I really have zero tax visibility / liability to VA. Of course, TurboTax does include the (empty) VA return every year in my "return to file" PDF and tells me to mail the generated Virginia form (and thus far I've filed it with no complaints from Virginia).

[DianeW777 · Accepted solution]

Of course. That's right, if you don't physically work in VA, then the income is not taxed.  Some states do tax remote workers now, but not many.  These include Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania. The list may grow over time to be sure to check each year.

These instructions should remove your state return.  

• Delete a State Return in TurboTax CD/Download
• Delete a State Return in TurboTax Online

[andybrucenet]

Thanks again - it's good to know that my research appears to be correct!

However, I'm still going to get a written opinion from a local Northern Virginia CPA to: a) verify that a Pennsylvania sole proprietor providing services to a Virginia-based company and receiving a 1099-NEC has zero tax liability to Virginia; and, b) determine whether there are any local jurisdictional requirements (e.g. a surety bond or some other bureaucratic paperwork) in order for me to be compliant in providing services within that jurisdiction. I'll post my findings.