Help me avoid the wrath of the taxman
January 5, 2016 7:06 AM Subscribe
My payroll taxes were messed up. You are not my accountant or tax lawyer, but what/how do I need to file?
I lived and worked in two states in 2015. The first state was Illinois. I'm getting a W-2 from the company that I worked for there, and will file Illinois taxes.
In November, I moved to Pennsylvania and began telecommuting for a completely virtual company that is registered as a corporation in Michigan. Our terrible former payroll company registered me as an employee in Michigan and took Michigan taxes out of all of my 2015 paychecks. My first 2016 paycheck will correct this and I will begin paying Pennsylvania taxes instead.
My understanding is that as a telecommuting worker, I need to file taxes for the state in which I work, but obviously that was screwed up with my paychecks. So, presumably, I need to file taxes for the states of Illinois and Michigan. Technically, I have not earned any money in the state of Pennsylvania, since all of my payroll taxes have been paid to Michigan. Do I need to file taxes for Pennsylvania, as well? If so, what would I report? Is there anything I can do to make this mix-up easier?
I lived and worked in two states in 2015. The first state was Illinois. I'm getting a W-2 from the company that I worked for there, and will file Illinois taxes.
In November, I moved to Pennsylvania and began telecommuting for a completely virtual company that is registered as a corporation in Michigan. Our terrible former payroll company registered me as an employee in Michigan and took Michigan taxes out of all of my 2015 paychecks. My first 2016 paycheck will correct this and I will begin paying Pennsylvania taxes instead.
My understanding is that as a telecommuting worker, I need to file taxes for the state in which I work, but obviously that was screwed up with my paychecks. So, presumably, I need to file taxes for the states of Illinois and Michigan. Technically, I have not earned any money in the state of Pennsylvania, since all of my payroll taxes have been paid to Michigan. Do I need to file taxes for Pennsylvania, as well? If so, what would I report? Is there anything I can do to make this mix-up easier?
Oh! I nearly forgot, there will be county, municipal and perhaps township taxes due in PA as well.
posted by Ruthless Bunny at 7:13 AM on January 5, 2016
posted by Ruthless Bunny at 7:13 AM on January 5, 2016
Just went through this and Ruthless Bunny is right.
posted by getawaysticks at 8:19 AM on January 5, 2016 [2 favorites]
posted by getawaysticks at 8:19 AM on January 5, 2016 [2 favorites]
A very similar thing happened to me with DC and Virginia. I had to file in both jurisdictions - I filed in Virginia earlier in tax season, got a massive refund (because I shouldn't have been filed there at all), then filed in DC and owed them a ton of money (because I should have been filed there). I applied the VA refund to the DC debt. Plus a bunch more, because DC has higher taxes than VA.
I would be surprised if your job offered anything about this. It is, as I learned, your own responsibility to look at your own pay stubs.
posted by everybody had matching towels at 9:17 AM on January 5, 2016
I would be surprised if your job offered anything about this. It is, as I learned, your own responsibility to look at your own pay stubs.
posted by everybody had matching towels at 9:17 AM on January 5, 2016
-Make an estimated payment to PA ASAP (and, if applicable, your municipality; PA doesn't collect local taxes for the municipalities like some other states do) -- this can reduce any penalties/interest you may owe as a result of the underpayment of estimated tax (i.e. withholding). Try to pay by Jan 15. Here's a relevant pdf.
-Under most circumstances, b/c you performed the work in PA, the income is sourced to PA.* Where your employer withheld tax or reported the income is irrelevant to your personal taxes -- their reporting obligations have nothing to do with your tax obligations.
-You'll need to file an MI nonresident return to get a refund of the taxes paid to MI. Note, they may give you a hard time, since the employer reported the wages to MI. If you use tax software, it might be confused by the W2 and source the income incorrectly. Consider filing on paper (if the state allows) or using a CPA for this year (NOT H&R Block). Don't be surprised if you receive a letter from MI questioning why you didn't claim the MI-reported-wages as MI-source income. This isn't a big deal, you can write them a letter and explain what happened and hopefully that will be the end of it.
Since software might be buggy for your situation, I'd look into using a CPA [again, NOT H&R Block/JacksonHewitt, NEVER USE H&R BLOCK/JacksonHewitt] for this year, so they can make sure everything is filed properly. They can also help with making sure you're paying the minimum penalty/interest possible and with responding to any followup inquiries from the state(s).
*Note for others reading this question: this is not always the case. If the situation were reversed - telecommuter working in MI for a PA employer, the income may be subject to tax in both states.
posted by melissasaurus at 11:17 AM on January 5, 2016
-Under most circumstances, b/c you performed the work in PA, the income is sourced to PA.* Where your employer withheld tax or reported the income is irrelevant to your personal taxes -- their reporting obligations have nothing to do with your tax obligations.
-You'll need to file an MI nonresident return to get a refund of the taxes paid to MI. Note, they may give you a hard time, since the employer reported the wages to MI. If you use tax software, it might be confused by the W2 and source the income incorrectly. Consider filing on paper (if the state allows) or using a CPA for this year (NOT H&R Block). Don't be surprised if you receive a letter from MI questioning why you didn't claim the MI-reported-wages as MI-source income. This isn't a big deal, you can write them a letter and explain what happened and hopefully that will be the end of it.
Since software might be buggy for your situation, I'd look into using a CPA [again, NOT H&R Block/JacksonHewitt, NEVER USE H&R BLOCK/JacksonHewitt] for this year, so they can make sure everything is filed properly. They can also help with making sure you're paying the minimum penalty/interest possible and with responding to any followup inquiries from the state(s).
*Note for others reading this question: this is not always the case. If the situation were reversed - telecommuter working in MI for a PA employer, the income may be subject to tax in both states.
posted by melissasaurus at 11:17 AM on January 5, 2016
This is something payroll providers are used to fixing. The person who handles payroll at your company* should, if they haven't already, reach out to whichever payroll provider is going to be preparing your 2015 W2 and ensure it gets fixed. If they can't fix it in time to be correctly reflected on your W2, then they can fix it and issue a W2c (corrected W2).
Once you've gotten assurance that's being taken care of, get thee to a CPA (real CPA, not strip-mall tax preparer!) for advice on how to proceed. They'll likely advise you to make an estimated tax payment to the relevant PA agencies ASAP and then to get the MI taxes refunded.
Good luck!
*Don't waste time calling the payroll provider yourself, they'll almost certainly tell you they can't make changes like this without speaking to your company's authorized payroll administrator
posted by rhiannonstone at 10:15 PM on January 5, 2016
Once you've gotten assurance that's being taken care of, get thee to a CPA (real CPA, not strip-mall tax preparer!) for advice on how to proceed. They'll likely advise you to make an estimated tax payment to the relevant PA agencies ASAP and then to get the MI taxes refunded.
Good luck!
*Don't waste time calling the payroll provider yourself, they'll almost certainly tell you they can't make changes like this without speaking to your company's authorized payroll administrator
posted by rhiannonstone at 10:15 PM on January 5, 2016
This thread is closed to new comments.
Technically 100% of all payroll taxes paid in Michigan should be refunded to you. Then you'd file in PA and pay what you owe there. So contact Michigan and ask them what you would need to file to get your taxes refunded to you.
Then file with PA and pay them with a check.
posted by Ruthless Bunny at 7:12 AM on January 5, 2016 [5 favorites]