Two State Returns-Something Ain't Right

[mgallagher3555]

I haven't paid up to see how the forms got filled out   by TurboTax but how it can it be that my wife and I will owe as much to NY as we are getting back in Michigan? She has a full time remote position, never stepping foot in NY. We make about the same, and she even had more withheld by NY than I did by MI. I think we own MI taxes from her salary. Turbo asked the right questions but came up  with this conclusion.

Thanks

[ErnieS0]

New York uses total federal income to calculate a base tax rate for part-year and nonresidents. It is not usual that you would owe NY tax on a joint return where only one person has NY income. Without knowing details about your income and withholding, I can’t tell whether $600 or $800 is reasonable or unreasonable.

After calculating a base tax on your total income, NY prorates the actual tax by the ratio of NY income to total income. This produces a higher tax rate, because the rate is based on your total income and not just your NY income.

Look at page 2 of your IT-203 to see what income is actually being taxed by NY. The New York State amount in the right column is NY income.

Line 45 on page 3 shows the allocation of NY state tax (NY state amount / federal amount) = NY percentage. This percentage is multiplied by the base tax of line 44 to come up with allocated NY state tax on line 46.

Michigan gives you a credit for tax paid to NY, but it is limited to 4.25%, because MI is a flat rate state. In comparison, NY’s second lowest tax bracket is 4.5% and it goes up to 8.82%.

Your wife can file a separate NY return, even if you file together for federal.

Related Resource:

How do I prepare a joint federal return and separate state returns?

[mgallagher3555]

Wow Ernie - that was really helpful. I can see how they are working it now. It happens that my wife's gross is within the same range as our joint gross so her filing non-joint would not gain us anything. 

And I see the credit on the Michigan return - though it allows NY to keep about 40% of the tax we presumably owe, while granting Michigan about 60%.

Still though - is it proper for NY to claim 1.5% more than we would own Michigan, or for that matter any tax at all?  My wife's employer counts how many days she works at the home office in NY state for tax reason - but that was zero in 2020. They led her to believe that unless she came to work in the state NY would not be taxing her.

I found this from 2006. If it's still germane then I think the employer's got it  wrong (or we misunderstand) because it's pretty specific about when an employee would not have to pay NY taxes, and my wife doesn't meet enough of the requirements.

https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf

Don't know if you can shed any light on that, but do you think we misconstrued this?

Again - thanks! Big help!

Mike

[ErnieS0]

It is proper for New York to claim more tax than you would owe to Michigan because each state has their own tax system.

The other state tax credit is based on how much tax would be paid if all the income were earned in the resident state, instead of the over state. So, unfortunately, you do get the excess if the other state’s tax is higher. Otherwise you are indirectly getting a credit on other income. For example, if the NY tax is $1,000 and MI tax is $800, if MI gave you a $1,000 tax credit, then the $200 is really reducing tax against other income.

New York is perhaps the most aggressive of all states in taxing telecommuters. It’s generally hard to go against what your employer shows on the W-2.

If you think your employer is incorrect, I suggest filing your return with tax paid to NY. After the return is accepted, you can file an amended state return claiming $0 NY wages and lay out your case. If NY denies your amendment, you owe nothing because you are paid up.

You can also speak with your employer. If your employer is willing to change the withholding to MI you should not have any problem with NY.