When filing multiple state taxes, what is the difference between allocated income on a part-year return and state wages reported in box 16 on a W-2?

[pizzacat]

I recently moved states and the software is asking me to allocate my box 1 wages between states but I'm not sure what the difference is between what I allocate and what is reported in box 16. The sum of the amounts in box 16 does not equal box 1 also.

[DanielV01 · Accepted solution]

Here's some general guidance.  Allocation is a term that means to designate, split or assign.  When you are filing a part-year resident return in particular, amounts reported on your W-2 do not always reflect the correct income amounts actually earned in each state, so allocation screens allow for you to adjust the amounts accordingly.  Please see this FAQ for more information:  https://ttlc.intuit.com/replies/4777389

There are a number of reasons why the state amounts reported don't equal the box 1 amounts.  For more detail, please comment on what are the two states, when you moved, did you continue to work in one state while living in another, and any other detail that might be helpful.

[pizzacat]

I moved from California to Oregon at the end of June and did not continue to work in California. The allocation I did was only off by less than $100 on the Oregon side but was about $2000 off on the California side so I wasn't sure which number (the allocation or the box 16 value) I was supposed to use.

[DanielV01]

I would use what is reported in box 16 for each state. California includes a few items in taxable income, like HSA contributions, which are not taxable on the Federal level. Since the Oregon amount of income reported on your w-2 is very close to your calculation, you are safe in assuming that each box 16 amount is the correct allocation to each state.

[robertlaber]

Hi, I have a very similar situation, however, my computed allocation amounts differ significantly from what appears in Box 16 of my W2.  Is it okay to proceed using my allocated amounts, essentially ignoring the values from Box 16?  I would so, since otherwise TurboTax would just ask me for the Box 16 amounts instead of asking me to allocate, am I correct?

[robertlaber]

I would assume so*

[gaurav26]

Hi, 

I lived in PA and worked in NJ. My employer issues me a W-2, which has some taxes withheld for PA (92%) and some for NJ (8%). It means they considered me a NJ resident for sometime, while I was always a PA resident. It happened because my address in the system was not updated for sometime. 

It seems there is some treaty between PA and NJ that says that if you are a PA resident working in NJ, then you just need to pay taxes for PA and no need to pay anything for NJ. So as I am filing my taxes - (a) can I use "zero" taxable income for NJ? (b) If so, then what should I consider the taxable for PA - sum of Box16 for both states or something else? Please suggest.

[DanielV01]

@gaurav26

The answer is yes to both questions.  NJ and PA do have a reciprocal agreement.  If you are a PA (full-year) resident working in NJ, and NJ tax was withheld, then you file a NJ return with 0 income to receive a 100% refund of NJ tax withheld.

For PA, all of the income will be taxable.  As long as the two lines associated with Box 16 on your W-2 divide your NJ and PA income, you will include both on your return.  However if either of the two lines (NJ and PA) express at least the amount in box 1, then you will want to exclude the other line from taxes.  Feel free to write back if this is the case, as there is a procedure to do this.

[Saugatuck71]

I moved from CO to MI in November 2020.  Why do I have to file a MI return as I did not earn any income in CO or in  MI for the month and a half at the end of 2020 for the whole year?

[DawnC]

You were a part-year resident of 2 states during 2020, so you have to file a resident state return in both states - if required.   Each state of different rules for income taxes.   The state of Michigan states the requirements to file a MI state tax return as - Individuals must file if they owe Michigan tax, if they are due a refund, or if their federal AGI exceeds the exemption allowance. Residents are allowed $4,750 for each exemption, plus various special exemptions. Part-year residents must prorate the exemption allowance.  TurboTax will transfer your federal AGI over to your state returns.   If your exemption allowances exceed your federal AGI, you won't be required to file the state return.   

Most states divide the income earned in that state by the total annual income to come up with a percentage. That percentage is then applied to the state tax on the entire year's income—no matter where it was earned—to prorate the tax liability. TurboTax follows the rules for each state.

How do I file a part-year state return?  The link has links at the bottom that explain in greater detail how the taxes are calculated and how to allocate your income between states.   @Saugatuck71