Tax Withholding Question (NY & IL)

[lokilokiloki]

My partner and I are full-time employees working at different companies based in NYC but we both are living and working from home in Illinois. We moved from NYC to Illinois last year.

Since the move, my partner still gets taxed by NYC every pay period. She doesn’t seem to be taxed by Illinois at all according to her W-2 form.

For myself, I get taxed by only Illinois every pay period. On my W-2 form, it indicates I was taxed by both NYC and IL.

I’m confused about why after our move I’m being taxed by Illinois and my partner isn’t even though our situation is similar. Is it different due how each company treat their remote employees or is one of us being taxed incorrectly?

[JotikaT2]

It depends.

Typically, you need to file a nonresident New York tax return as New York taxes all residents and nonresidents on any income from New York sources.

In Illinois, you would be able to claim a credit for the income that is taxed by New York and Illinois.  This will ensure you do not get taxed on the same income twice by two different states.

To ensure your return is calculated correctly, you will need to confirm a few items: 

In the My Info section of TurboTax, confirm that you have entered the correct state information: 

1. Click Edit to the right of your name 
2. Confirm your input under #2 Tell us the state(s) you lived in
3. Go back to the personal information section, and verify the mailing address and "Other state income" section.  Be sure to answer yes to the question asking "Did you make money in any other states?". 
4. Review your input in the Federal section under Wages.  Make sure to report your state wages and withholdings as reported on your W-2 forms.

Please note the following as it will affect the calculations: 

When you are preparing more than one state return, make sure you prepare the nonresident year resident New York state tax returns first.   Be sure to answer the questions correctly to ensure only income sourced to that state specifically are reported.  If there is no income that is sourced to New York state, please indicate the source of the income.

You will then prepare your resident state Illinois return.  As you go through the interview, you will be prompted to enter information regarding taxes paid in another state.  This will generate the credit on your Illinois return for the taxes already due to New York.

Depending upon your overall tax liability for each state, you would either leave your withholdings as they are, or if you end up owing taxes in Illinois, you can request that your employer withhold state taxes for Illinois to avoid any potential underpayment penalties.