Which State Return to Enter Americorps Segal Education Award

[Mochina]

My son earned an Americorps Segal Education Award while working for 2 years in Oregon for a non-profit organization.  After the job ended in 2022, he returned to California which is his domicile and used the Award toward qualified educational expenses of graduate school.   He is filing both California and Oregon tax returns. Which return should he use to report the award?  The 1099 MISC that documents the award is addressed to his California domicile, and it is a California University's expenses toward which he is applying the award, so shouldn't he report it on his California tax return?  

[Mochina]

I have an update to my original question. I just found out that starting in 2021 the Oregon State Legislature passed a law exempting the Americorps Segal Education Award from Oregon state taxes. Assuming that my son needs to report the 1099 MISC on his Oregon tax return because he earned the award in Oregon, hopefully the Oregon edition of TurboTax will reflect this.

So my amended question is whether he still has to report the Education Award on his California tax refund? And  if yes, what are the steps involved in reporting for California, to avoid technically what is "double taxation"? 

[BillM223 · Accepted solution]

It appears that California taxes residents on income from any state. However, there is a way that the states deal with this. If your son enters the 1099-MISC on the federal return, it will show up on both states.

Then have your son enter his nonresident state (Oregon) first. This will presumably generate a tax bill. Then enter his California information. The California return will look for tax bills from other states (I don't think he'll have to enter it, but watch for questions on this), and then use Oregon's tax bill to create a credit against California taxes.

This is how most states avoid "double taxation".

[Mochina]

My son and I just finished his federal tax return, and based on the advice of Bill, started on the Oregon non-resident tax return.  Since we included the Americorps Education Award of $12,500 on the federal return, I expected the inclusion of the Award as state income since the Award was earned in Oregon, and then a subtraction since Oregon does not tax the Americorps Award. However, there was no reference to the Americorps Award at all--the $12,500 was not included as income.   Is this correct?

The California state return basically took the adjusted gross income from the federal return, which included the Americorps Award since currently it is taxable income in California. 

[JulieS]

No, this is not correct. There is a subtraction for the AmeriCorps  Award, but it isn't easy to find.

1. Open your return and select Prepare State on the left side.
2. Click Continue.
3. Click Continue or Edit to the right of your Oregon return and click through the first few screens. 
4. Look for the screen Here's the income that Oregon handles differently.
5. Scroll down and find Other subtractions under Misc adjustments.
6. Click Start or Revisit to the right.
7. Answer the first question Yes.
8. At the bottom of the list check the box next to "If you have a subtraction to Oregon income that you haven't already entered".
9. Click Continue.
10. On the Other Subtractions Statement, use the inside scroll bar to scroll down to 362. Enter the amount of the award in both columns.

[Mochina]

Julie, thank you very much for your directions for handling the Americorps Award on the Oregon Non-Resident Tax Return. However, I am confused about the California state resident return treatment of the Americorps Award.  Since the Award was earned by my son in Oregon, (and Oregon does not tax it), why is it subject to California taxes? Isn't that considered "subject to double taxation"?  Or is there some way to indicate on the California return that the Americorps Award was earned in Oregon and should not be subject to California taxes? 

[JulieS · Accepted solution]

No, there isn't a way to avoid having California tax it, regardless of whether it is taxed in Oregon, or not.

As BillM223 stated in his post, California calculates the tax on your entire income and then gives you a credit for the taxes paid your non-resident state. 

[Mochina]

I understand what you are saying.  Unfortunately, I checked the  Turbotax "Other State Tax Credit" section  of the California return, and it indicates that if the other state is Oregon, there is no credit for California tax payers.

Is this correct?  

[RobertB4444]

Yes, Oregon and California have a reciprocal agreement.  So, in this case, you will claim a credit on your Oregon non-resident tax return for any income that is taxed by both Oregon and California.  For these two states the state of primary residence gets dibs on the tax money.

@Mochina 

[Mochina]

Thanks Robert B. In addition to the Americorps Award earned on Oregon, my son had wage income of about $10,000 that is also taxed by California. How does he claim the credit on the Oregon return?

[BrittanyS]

To claim the AmeriCorps Segal Education Award on the nonresident Oregon Return, you will follow these steps in TurboTax Online:

1. Click State Return
2. Select Oregon and click edit
3. Click Edit next to Income
4. Click Start next to Other Subtractions
5. Click yes for "Do you have any of these subtractions (or others not listed)?"
6. Check the box for "If you have a subtraction to Oregon income that you haven't already entered.  Check this box and click continue."
7. Scroll down to line 362 and enter the reward in both the Federal and Oregon columns

Please take a look at JulieS's screenshot above for how the form should look in TurboTax.

To claim the taxes paid to another state credit, follow these steps in TurboTax Online:

1. In the state return, click edit next to Credits and taxes
2. Click Start next to Credit for Tax Paid to Another State
3. Answer interview questions regarding Income Taxed by California

@Mochina