What if an employer did not deduct State tax for PA (state of residence), when an employee worked in 2 other states (WI and IN) throughout the year?

[NewNonnie]

My son is a PA resident. He worked in IN for a couple of months of 2016, and then worked in WI for the rest of the year. His employer took out state taxes for IN and WI, but it appears that nothing was taken out for PA, and he will have to pay quite a bit. How should I do his State taxes to be sure the amounts are correct? He was sent to Italy at the beginning of 2017 and will not be back until July. Would it be wise to file extensions for federal and state until he returns?

[DianeW · Accepted solution]

As you may be aware, the PA return for a resident, all worldwide income must be reported and taxed.  

PA has a reciprocal agreement with IN so that return should be filed with zero income for a full refund of any tax withheld.  This will help to pay the PA tax bill.  File as a nonresident where the reciprocal agreement applies.

There is no agreement with WI, so that return must be filed to include only the income that was earned there. The tax will apply only to the earnings in that state. Prepare this return first as a nonresident. 

Once the WI return is completed, then PA will offer a "credit for taxes paid to another state" on the same income to eliminate double taxation on the same income.  The credit will be the actual tax liability (not refund or balance due) for WI or what the tax would be if the PA tax rate is applied, whichever is less.

An extension could be filed if you choose, however an extension of time to file is not an extension of time to pay.  If PA has a balance due, interest will accrue on this unpaid balance until the tax is paid.

Best advice is to file for him and use a POA if necessary.  You can also use Form 2848 Power of Attorney.