, Answering FAQ'sTurboTax Employee
For tax purposes, your residence (sometimes called domicile) is your tax home, where you pay taxes. The year began with you living in one state and ended with you living in another state. Part of the year your “state of residence” was one state, you moved, and for part or the year, your residence was in another state.
Now you have two (or possibly more) resident states to file part-year taxes in. Many states have a form specifically for part-year returns (often designated by the letters PY). Some other states use the same form for residents and nonresidents. TurboTax will generate the correct form for your particular states.
Part-Year Example: Joe has lived and worked in New York for many years. Last summer, he found a better job in Pennsylvania, and in September he moved there to work for his new employer. He will file part-year returns for both New York and Pennsylvania.
Nonresident Example: Mary lives in New York and commutes to her job in Pennsylvania. Every year she files a resident return for New York plus a nonresident return for Pennsylvania.
Tell Us Which States You Lived In
First, make sure TurboTax knows each state you lived in during the tax year. To prepare returns in six or more states, you'll need to switch to the CD/Download software version:
Enter States in TurboTax Online Edition
- In the Personal Info area, click Start/Update to go to the Let’s Confirm your info for 2013. Click Continue.
- On the Did You Live in Another State in 2013? screen, click Yes and enter the previous state you lived in, and the date you moved to your current state. Click Continue.
- On the Did you Make Money in Any Other States? screen, Click Yes if you earned money in (or lived in) any additional states, and select the state(s).
Enter States in TurboTax CD/Download Edition
- In the Personal Info area, proceed to the Your Personal Info summary screen.
- Edit each taxpayer: on the Info screen,
- Check Yes next to (name) lived in another state in 2013.
- Then choose the previous state you lived in and enter the date you moved to your current state.
- Click Continue to return to the Your Personal Info screen.
- Scroll down to the Other State Income section and click Edit.
- Check Yes on the Did You Make Money In Any Another States? screen and select the state(s), then click Continue.
- Enter the appropriate information on the Tell Us About Your Move screen and click Continue to finish.
Complete Your Federal Return
Enter all of your federal tax information in TurboTax. Some states allow you to itemize even if you use the standard deduction on your federal return. Enter every deduction you have even if you don’t itemize! You might benefit by itemizing deductions in certain state tax situations.
If you are preparing one or more nonresident returns in addition to your part-year returns, make sure you prepare all nonresident state returns first, to ensure proper calculations.
Then prepare your previous state part-year return(s).
Last, prepare your current (resident) state part-year return to ensure proper flow of any credits one state may offer for residents in another state.
TurboTax will help you split income between states, but it helps to know how this works. When we have information about move dates, Turbotax seeks to prorate your income as described next.
However, you still need to verify, and sometimes assign or allocate, certain income items between states to ensure accuracy. It may help to print and refer to this article as you step through your state tax returns.
Prorating Income between States
Most states calculate the tax on part-year returns by dividing the income earned in that state by the federal adjusted gross income (AGI) to come up with a ratio or percentage. That percentage is then applied to the state tax amount (based on the entire year's income) to prorate the tax liability. This is how TurboTax starts working with your state taxes.
EXAMPLE A: You moved from State A to State B last year, and your taxable income for the year was $100,000. You earned $75,000 of it in State A, the remaining $25,000 in State B.
State A’s tax table shows the tax on your income ($100,000) is $9,500. However, because you only earned $75,000 (75%) of that income in State A, a factor of .75 is applied to the $9,500 tax figure, reducing your tax liability to $7,125 ($9,500 x .75 = $7,125).
Similarly, state B applies a factor of .25 to the tax on your annual income because you earned $25,000 (25%) of your income in State B (9,500 x .25 = $2,375.
EXAMPLE B: Suppose you earned the entire $100,000 in State A, but you only lived there for 1 month. State A would tax your entire income without prorating because you earned 100% of your income there. Because you earned no income in State B, you would owe no taxes there even although you lived there for 11 months. But, as a resident, you may still be required to file a return in State B.
In other words, the length of residency is irrelevant in many state tax calculations. What matters to them is the percentage of your total income earned in that state
Allocating Income Between States
You may be asked to split some types of income into the amounts earned in each state. TurboTax may ask you to allocate (split) your income and only enter the earnings you made in each state. This means you need to:
- Verify transferred amounts in TurboTax, or
- Enter the portion of income you received while you were a resident of that state.
But how do you do that? For tax purposes, there are two classes of income you’ll need to work with.
Allocating Unearned Income
Assign (allocate) unearned income by entering it under the state you were a resident of when you received it. Here are some examples:
- You closed an interest-bearing account while living in California, so you should allocate the interest to California.
- You received 3 quarterly dividend payments while living in Arkansas, and the remaining payment while living in Oklahoma. You'll allocate 3 payments to Arkansas and 1 payment to Oklahoma.
- You made a modest profit from the sale of stocks right after you moved to Iowa. The gain from the stock sale is allocated to Iowa.
Allocating Earned Income
Earned income is money from employment sources (wages, salaries, tips, and commissions, money you work for) as opposed to unearned income (money that works for you).
Allocating earned income is easy if you stopped working for your former employer and started working for a new one when you moved. All you need to do is look at your W-2 or Form 1099. Your earnings from your old job should be allocated to your old state, and your earnings from your new job should be allocated to your new state.
However, if you continued working at the same job while residing in different states, things can get a little tricky. You'll need to estimate how much of the income you earned while you were a resident of one state versus the other.
Here are some ways you can allocate your earned income:
Earned Income Allocation Method 1:
Find an old paystub with a pay period ending around the time of your move. The YTD (Year-To-Date) amount on the paystub will show you how much income you earned while residing in your old state. This is the most accurate method if the income from that job fluctuated during the year.
Allocating Earned Income Method 2:
Estimate the number of weeks or months you worked at that job while you were a resident of one state and divide it by the total of weeks or months you worked at that job to come up with a factor. Then multiply the factor by the entire income from that job. Examples:
- If you worked at that job the entire year and moved in early May, you earned roughly 4 months' worth of income (1/3 or 33% of your total income) in your old state. Multiply the income from that job by .33 to obtain the allocation for your old state; the remainder is allocated to your new state. OR
- If you worked at that job for 39 weeks total (4 weeks while living in your old state) you'll divide 4 by 39 to come up with a factor of .1026. Then multiply the income from that job by .1026 and allocate that amount to your old state; the rest gets allocated to your new state.
Earned Income Allocation Method 3:
Use an Ordinal Date calendar where the days are numbered from 1 to 365 to obtain a more precise factor if you worked at that job for the entire year. Here's what you do:
- Find the Ordinal Date for your move.
For example, if you moved on August 7 in a non-leap year, the ordinal date is 219 because it's the 219th day of the year.
- Divide the ordinal date by 365 (366 in a leap year) to come up with a factor. In the August 7 example above, the factor is .6 (219 divided by 365).
- Multiply the factor by the total income for the year to figure the income allocation for the old state. The remainder of the income is allocated to the new state.