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Troubleshooting common federal to state transfer issues

SOLVEDby TurboTax975Updated December 23, 2021

TurboTax transfers data from your federal return to your state return. If the info in your federal return is incomplete or incorrect, your state return won't be complete or correct either.

Before you begin troubleshooting your state return, go back through your federal return (starting at the Personal Info tab) and make sure everything's correct.

Once you're done, select the State Taxes tab and review the state section. Pay close attention to the info, especially if you made changes to your federal return. There might be new sections that need to be completed.

Sometimes changes made to your federal return won't transfer if you override info in your state return. If this happens, delete your state return and start over.

This situation often happens when taxpayers live and work in different states.

Example: Alex is a New Jersey resident who earns their entire $50,000 annual income in New York. They receive two W-2 forms from their employer:

  • The first W-2 has NY, 50,000, and 3,000 in boxes 15, 16, and 17. Alex's employer has allocated $50,000 to New York and has withheld $3,000 in New York income tax.
  • The second W-2 has NJ, 50,000, and 0 in boxes 15, 16, and 17. Alex's employer has allocated $50,000 to New Jersey, but didn't withhold any New Jersey income tax.

Alex's salary is taxable in New York, where they earned it, and New Jersey, where they live. To avoid being double taxed on the same income, they're allowed to take a credit for taxes paid to New York on their New Jersey return.

Because New York and New Jersey don't have a reciprocal agreement, Alex will have to file two returns: a New York nonresident return and a New Jersey resident return. Alex prepares a New York return first to ensure that TurboTax applies the proper credit to their New Jersey return.

Alex's New York Nonresident Return

When Alex gets to the Form W-2 Summary screen, they see:

NY-W2-screen

TurboTax has added the box 16 amounts from both W-2 forms to come up with a Total State Wages amount of $100,000, twice Alex's actual income.

However, TurboTax is not calculating Alex's NY tax liability based on $100,000, which means their NY taxable income isn't being doubled (despite appearances to the contrary). This becomes apparent after Alex selects Done to go to the New York Income Allocation screen.

On this screen, TurboTax has prefilled the 50,000 figure directly from box 16 of Alex's W-2. This is the income figure that TurboTax used to calculate their New York tax liability:

NY-allocation

Because Alex's entire $50,000 salary was earned in New York, they don't need to make any changes on this screen. (The only reason they would need to change it is if their employer made an error in box 16 of his W-2 form.)

Alex finishes their return. Their New York tax liability is $2,516 and they get a $484 refund ($2,516 + $484 = $3,000 withheld).

Alex's New Jersey Resident Return

Now Alex is ready to prepare their New Jersey return. The Income and Deductions Summary screen correctly shows $50,000 next to the Wages and Salary heading. When Alex gets to the Summary of Taxes Paid to Other Jurisdictions screen, they see that TurboTax has calculated a $1,216 credit for taxes paid to New York using info from their New York return.

They don't get the full $2,516 credit, because the credit can't exceed their New Jersey tax liability of $1,216. The two figures cancel each other out and they owe no additional tax to New Jersey.

NJ-tax-credit

Your return may look a little different than the New York/New Jersey examples, but the underlying principle is the same. TurboTax adds all W-2 box 16 amounts together, resulting in what appears to be double income on one or both state returns, but actually isn't.

All you need to do is review your return to make sure the allocation screens show the correct amount. The income allocation for a given state is the amount of income that was earned in that state (also referred to as "state source income").

Important: Don't confuse state source income with the state that the employer's corporate offices are located. For example, income that's earned in New York while working for a company headquartered in Delaware is sourced (which means taxable) in New York, not Delaware.

If your wages or withholding didn't transfer to your state return, go back to your W-2:

  1. Select the Federal Taxes tab near the top of the screen.
  2. Select the Wages & Income subtab.
  3. Find the Income Summary screen.
  4. Select Update to the right of Wages and Salaries.
  5. Select Edit next to the W-2 that contains the state income and withholding in question.
  6. Scroll down to Boxes 15-17 (state wages and taxes withheld) and check the following:
    • Box 15 State should contain the correct 2-digit state code. For example, if an Arizona resident wrongly chooses AR instead of AZ, TurboTax won't pull the info over. Check your US USPS state abbreviation here.
    • Box 16 Wages should contain the wages that were earned in the box 15 state. If this field is left blank, TurboTax sometimes transfers the box 1 (federal wages) amount, but not always.
    • Box 17 State Income Tax should contain the taxes withheld amount (the withholding) for the state in box 15.
  7. Select Continue twice to save your changes. If necessary, repeat these steps for other W-2s.

If your income is approximately or exactly doubled on your state return and you work and live in different states, refer to the Income is Doubled section above.

Data entry errors, such as misplaced decimal points or extra digits, can have dramatic effects on your state return. Here's what a missing 0 on Form W-2, box 17 did to this return:

W-2 box 17 = 400 (incorrect)

W-2 box 17 = 4,000 (correct)

MD-taxdueMD-refund

To check your W-2:

  1. Select the Federal Taxes tab near the top of the screen.
  2. Select the Wages & Income subtab.
  3. Navigate to the Income Summary screen.
  4. Select Update to the right of Wages and Salaries.
  5. Select Edit next to the W-2 that contains the state income and withholding in question.
  6. Scroll down to Boxes 15-17 and make sure those boxes are correct. Check that box 15 contains the correct 2-digit state code. Check your US USPS state abbreviation here.
  7. Select Continue twice to save your changes. If necessary, repeat for other W-2s.

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