State allocation

[taxtips4elmo]

From January 1 until October 31, 2022, I received severance pay from a NY company while living in Delaware. I was retired and did not work in NY or DE. NY taxes were withheld and paid to NY by the company (NY indicated on my W-2). Are my wages allocated to Delaware or NY – and which NY form do I file?

[DianeW777]

You must file Form IT‑203 if you meet any of the following conditions:

• • You have income from a New York (NY) source (see source below)

Nonresidents – New York source income

For nonresidents New York source income is the sum (with adjustments for special accruals as defined on page 48) of income, gain, loss, and deduction from:

• services performed in New York State or for a company situated in NY; (For other items on the list click this link for NY NR Instructions.

File Delaware (DE) with all of your worldwide income as a resident. They will allow credit for taxes paid to another state on the same income.  Be sure to indicate in your Personal Info section that you have income from another state and select NY.  TurboTax will carry the NY state tax to your DE return,  Be sure to watch for the question in the DE section.

The best way to explain how the tax credit works (taxes paid to another state on the same income) is shown below. Prepare your nonresident state return first, then prepare your resident state return.

If your resident state tax is a higher rate, then all of the tax paid to the nonresident state will be applied.  If the nonresident state tax withholding is at a lower rate than your resident state you will make up the difference when all the calculations are complete. In reverse, if the state withholding on your nonresident state is at a higher rate than your resident state, you do not get the difference refunded unless the withholding was more than you tax liability for that nonresident state.  Your resident state will not refund any money they never received.  The notes below will explain how it works.

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 for tax paid to another state on the same income will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state