Company's been taxing me in the wrong state. What are the implications?

December 8, 2015 6:09 AM

About a month ago I moved from State A to State B to work in my company's new office. Even though I updated my location with my company and our payroll system, I've still been having only State A taxes withheld, and no State B taxes. Since I'm living and working in State B, I should only have State B taxes withheld as of my move. Turns out that, due to an oversight, the subsidiary of my company that I officially work for isn't yet registered in State B. They're going to fix it on the payroll side, but what implications should I be aware of? Does it matter whether it's fixed by end of year? More details below the fold:

State A has higher taxes than State B, so at least I haven't been under-withholding. I know they will be able to re-allocate the taxes on the payroll side, and will potentially issue me a refund for what was over-withheld. I am unclear on how long it will take them to get registered in State B, which they have to do before they can fix the issue.

State A and State B have no reciprocity or courtesy withholding agreements.

My relocation is permanent, not temporary.

In case it comes up, me working for the subsidiary is unrelated to my move. Most of the people in the new office work for the parent company, which is properly registered in State B, and everyone else who moved from State A to State B is having taxes correctly withheld from State B since they moved.

I will be looking for a CPA in January, but would definitely like to start wrapping my head around this situation now in case there's anything major I need to be aware of.

posted by anonymous to Work & Money (3 answers total)

90% of this should be resolved in the employer end when you should get a W2 outlining how much in taxes was paid both to state A and state B. In both states you will file a part-year-resident state return. At worst, you will owe slightly more (a month worth of taxes) to state B and get back slightly more from state A.

Had this been going on for several months and your employer never reversed course on the previous withholding, it's likely you would have owed some interest to state B because you did not send them any tax money over the course of the year, but two pay periods' worth of taxes shouldn't make a difference.
posted by deanc at 6:24 AM on December 8, 2015

This happened to my spouse a couple years ago. We have income tax, and the other state doesn't, so there was no state withholding at all. We just ended up owing tax, it was no big deal since we were prepared for that outcome. If they can't fix it by tax time, just make sure you have enough money put aside to cover it until you get the other state's withholding back.
posted by rabbitrabbit at 7:13 AM on December 8, 2015

The company will file W-2 (C) -- which stands for corrected-- with both states and the IRS.
posted by ohshenandoah at 8:01 AM on December 8, 2015