W2 Withholding for wrong state

[RiverCitiesFan]

My sons employer listed his school address (North Dakota) and not his permanent address (Minnesota) on his W2.  The employer paid state taxes to ND and not MN as they should have.  He only had $1,300 in wages and $6.00 of state withholding if that matters.  I am unclear as to how to handle this.  Do we need to file with both ND and MN?  He does have one other W2 from another employer that has his correct state and state withholding.  Any help its greatly appreciated.

Thanks

[DavidD66]

As a non-resident of North Dakota, your son would only need to file a ND tax return to receive a refund of the $6.00 withheld.  I suggest he file a Minnesota return, claim all his income on that return and not worry about the $6 in North Dakota tax withheld.

[RiverCitiesFan]

Thanks a bunch David.  

I also have a similar situation with my daughter.  She is also a non-resident of North Dakota, but her employer switched from ND to MN withholding mid-year.  She had $133.00 withheld in ND and $124.00 withheld in MN.  I am guessing in her case she will need to file in both states?

[JohnW152 · Accepted solution]

Yes.  She may not be required to file a state income tax return in either state, but she’ll need to file if she wants to get her withholding back.

See Individual Income Tax in North Dakota and Minnesota's Who Must File an Income Tax Return for filing requirement information for each state.

[RiverCitiesFan]

One follow up.

According to MN tax laws, it appears that my daughter would have to file a MN tax return if her gross income is at or above $12,525.  Are they referring to Federal AGI?  Or is it the amount in box 16 of the W2?  This is confusing me as she received two W2's from her employer as withholding was switched from ND to MN during the year.  Her MN state wages in total are well under the 12,525 listed above, but her Federal AGI is over that.

Essentially the issue is she appears to need to pay in to both federal and state and I need to make sure I am getting this right.  I'm not sure if the MN tax should be based off her total federal AGI from both ND and MN earnings, or just the portions listed in box 16 of W2?  Sorry if this is confusing.

Typically my wife and I claim her as a dependent for the education credits, but we may need to play around with that if she has a big tax bill.  Is that easy to do in Turbo Tax Premier?

Thanks!

[RaifH · Accepted solution]

Yes, a full-year resident is required to file a Minnesota tax return if their taxable income from all sources exceeds $12,525. Aside from some rare and often small adjustments, this is the amount on her federal Form 1040 Line 11. 

All her income is considered Minnesota income because Minnesota and North Dakota have a reciprocal agreement. That means when you are filling out the nonresident return for her for North Dakota, you should enter $0 as North Dakota wages to get a full refund of the state taxes withheld by North Dakota.

As far as whether she is considered your dependent is concerned, the deciding factor in most cases is whether or not she provides more than half her own support if she is a full-time student under age 24. The IRS provides a worksheet that you may find useful to determine if your daughter does provide more than half her own support. 

While the issue of support determines whether or not she can be claimed as a dependent, there is no easy way to play with it to see which way provides the maximum benefit. You can remove her from your return and add her back to see the impact on your taxes. Likewise, on her return, you can select and unselect whether she can be claimed by someone else in the My Info section of her return. 

Two elements to consider are her education credits and the recovery rebate credit. If you do not benefit from her education credits due to the AGI limit and she supports herself, it will probably provide a better tax outcome to not claim her. This is especially true if you claimed her in 2020, because she would then be able to claim the recovery rebate credit. See Question C9 at the link above for her exact circumstance. 

[RiverCitiesFan]

Great information!  Thanks!