Earning in two different states

[yashK]

Hello

I worked  in Colorado and Michigan for year 2021. I have received two different W2s from my employer. I have received small interest from my trading account. They have provided me 1099-int. To which state will I pay tax for that interest earned. Also what will be my residency status in each state like resident or non resident 

[HelenC12]

You'll be a part-year resident in each state. See How do I file a part-year state return? We suggest you prepare the return for your former state first, followed by the return for the state you currently live in.

To report your 1099-INT, allocate the interest you earned as a CO resident to CO, and the remainder to MI. An easy allocation method is to divide the year's interest by 12, and then multiply the figure by the number of months you lived in each state.  Please see How do I allocate (split) income for a part-year state return?

[yashK]

@HelenC12  Thanks for reply. Also I received some RSUs. My RSUs were allocated to me in 2020 when I was in Colorado but they were vested for the first time in Aug 2021 when I started living in Michigan. My employer sells some stocks to cover taxes. I see in my W2 and in my paystubs that my employer has withheld all the RSU related taxes to the state of Michigan. Is that correct ? Do I need to pay all the taxes on my vested RSUs to the Michigan state or do I need to make calculations about how many days I lived in state of Colorado and fill my taxes accordingly

[ErnieS0 · Accepted solution]

Colorado considers restricted stock unit proceeds to be taxable to nonresidents. The state says:

Income from the exercise of employee stock options is Colorado-source income if such income is treated as compensation for federal tax purposes and to the extent the employee worked in Colorado during the period the employee was required to work for the employer prior to the exercise of the option.

See GIL 20-004 December 18, 2020

[yashK]

@ErnieS0  My RSU vesting period is 4 years. I mean every year I get 25% of the stock. 

At present, my employer has withheld all the RSU related taxes with the state of Michigan. Is that right ? Or shall ask my employer to withheld my taxes with Colorado as well as with Michigan ?

Does it mean that I will need to pay some portion of my taxes to Colorado for 4 years ?

[DianeW777]

It depends. The key is 'Colorado (CO) source income'.  If the employer is situated in CO then the answer is yes, each time the RSUs are vested then you would be liable for the income in CO.  If the employer is not in CO, then you may only need to file your resident state return.  Each state has their own tax rules.

Always prepare the nonresident return first and your resident state will give you a credit (in the future)

The credit for taxes paid to another state on the same income is used on your resident state because they do not want you to pay taxes twice on the same income.  As the resident state all worldwide income must be included.  The credit allowed is the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by the resident state
   1. When to file more than one state return.

When you are signed into your TurboTax account be sure to answer the question in the Personal Info section about income from another state.  Then when you go to the State tab you will see the other state there for you.

• State Departments

[yashK]

@DianeW777 How will I know if it is a Colorado source income ? I was hired in Colorado and worked there for around 8 months. My W2 has location of the employer as headquarter which is in California. I dont think my employer has office in Michigan. But I know that we have lot of employees working in Michigan. So definitely the employer has presence in Michigan. In that case, do you think if I still have any liability to Colorado

[DianeW777]

No, you don't need to file CO in a year you did not live there and the employer is not situated there. Since the employer is not situated in CO you should only be concerned with the state you physically work in.  And if that is your resident state you should generally file only that state.

Occasionally there is a state that requires you to file if your income is derived from their state, but not all.

• California: Do I need to file as a nonresident?  Since you are not a business you are not required to file this return unless you would be physically present, working in this state.