What state taxes am I responsible for?
September 15, 2017 6:01 AM Subscribe
I just got a remote programming job. The company is headquartered in Illinois (and IL state taxes are being withdrawn from my paycheck). I live in NYC (which means both NY state tax and NYC resident tax but those are not being withdrawn from my paycheck). Does anyone out there have experience with this situation? Especially the part about living in NY state or even NYC (because NY state has particularly strong ideas about who pays taxes).
I don't think that's true; your state taxes are usually due to the state you *work* in (and sometimes also to the state you reside in). I've gotten paid for work done in California while I was resident in (and primarily employed in) Massachusetts, and I had to pay CA income tax on that money and MA income tax on the money I earned from my regular Massachusetts job.
No difference for you though since you are living and working in the same place. But it seems a little weird that your company is withholding IL taxes; maybe IL has its own rules about this? I would ask someone in payroll at your company, although really they should have talked to you about this! (Maybe they don't have a lot of experience with remote workers?)
posted by mskyle at 6:24 AM on September 15, 2017 [1 favorite]
No difference for you though since you are living and working in the same place. But it seems a little weird that your company is withholding IL taxes; maybe IL has its own rules about this? I would ask someone in payroll at your company, although really they should have talked to you about this! (Maybe they don't have a lot of experience with remote workers?)
posted by mskyle at 6:24 AM on September 15, 2017 [1 favorite]
your state taxes are usually due to the state you *work* in
This has not been my experience -
The first year that I worked in DC, but lived in Maryland, DC withheld tax, MD did not.
What I ended up doing was filing 2 state returns that year - one for DC which essentially claimed the entirety of the tax paid as a refund, and one for MD in which I paid a large amount , since I had not had any tax withheld to MD over the course of the year. As far as I can tell, this is what you'll have to do with IL and NY, respectively.
I can't remember how I resolved the withholding situation - your withheld taxes should be going to NY. I'd definitely say start with HR, to make sure it's not something they can fix.
posted by god hates math at 6:47 AM on September 15, 2017 [1 favorite]
This has not been my experience -
The first year that I worked in DC, but lived in Maryland, DC withheld tax, MD did not.
What I ended up doing was filing 2 state returns that year - one for DC which essentially claimed the entirety of the tax paid as a refund, and one for MD in which I paid a large amount , since I had not had any tax withheld to MD over the course of the year. As far as I can tell, this is what you'll have to do with IL and NY, respectively.
I can't remember how I resolved the withholding situation - your withheld taxes should be going to NY. I'd definitely say start with HR, to make sure it's not something they can fix.
posted by god hates math at 6:47 AM on September 15, 2017 [1 favorite]
I work remote-ish for a company headquarter'ed in Illinois. I live in NYC.
You pay taxes to New York (and the additional tax for NYC city/metro). You should not pay IL taxes.
posted by sandmanwv at 6:47 AM on September 15, 2017 [3 favorites]
You pay taxes to New York (and the additional tax for NYC city/metro). You should not pay IL taxes.
posted by sandmanwv at 6:47 AM on September 15, 2017 [3 favorites]
What I ended up doing was filing 2 state returns that year - one for DC which essentially claimed the entirety of the tax paid as a refund, and one for MD in which I paid a large amount , since I had not had any tax withheld to MD over the course of the year. As far as I can tell, this is what you'll have to do with IL and NY, respectively.
I think DC is actually a special case - if you live outside the district and work there, you pay taxes to your home state.
There are also a lot of groupings of states in the Mid-Atlantic and Midwest where there's a reciprocal agreement and Maryland is involved in at least one. (I didn't know this before I looked it up just now! Learn something new every day.)
posted by mskyle at 6:57 AM on September 15, 2017 [1 favorite]
I think DC is actually a special case - if you live outside the district and work there, you pay taxes to your home state.
There are also a lot of groupings of states in the Mid-Atlantic and Midwest where there's a reciprocal agreement and Maryland is involved in at least one. (I didn't know this before I looked it up just now! Learn something new every day.)
posted by mskyle at 6:57 AM on September 15, 2017 [1 favorite]
Best answer: "your state taxes are usually due to the state you *work* in "
You actually FILE taxes in both, but your home state will credit you for the taxes paid in your work state, so you'll only be taxed once on the income. In some cases, if you work in states next door to each other, the states will have an agreement that makes filing simpler, but that's not the case here.
First you do your federal 1040. Then you go to Illinois. You'll want the IL-1040 and the IL-1040 NR (which I have filed MANY TIMES when in college and grad school), and do that one first. Then you'll file your NY taxes and claim a credit for taxes paid to Illinois, which will reduce (or possibly eliminate) your NY tax liability.
You can do this in Turbo Tax -- it's a pretty common situation -- but sometimes you have to fiddle a bit to figure out how to convince it to do the non-resident stuff. (It's not super-painful to do Illinois's by hand because Illinois has a flat income tax and you've already got the fussy bits from your federal 1040.)
posted by Eyebrows McGee at 6:59 AM on September 15, 2017 [7 favorites]
You actually FILE taxes in both, but your home state will credit you for the taxes paid in your work state, so you'll only be taxed once on the income. In some cases, if you work in states next door to each other, the states will have an agreement that makes filing simpler, but that's not the case here.
First you do your federal 1040. Then you go to Illinois. You'll want the IL-1040 and the IL-1040 NR (which I have filed MANY TIMES when in college and grad school), and do that one first. Then you'll file your NY taxes and claim a credit for taxes paid to Illinois, which will reduce (or possibly eliminate) your NY tax liability.
You can do this in Turbo Tax -- it's a pretty common situation -- but sometimes you have to fiddle a bit to figure out how to convince it to do the non-resident stuff. (It's not super-painful to do Illinois's by hand because Illinois has a flat income tax and you've already got the fussy bits from your federal 1040.)
posted by Eyebrows McGee at 6:59 AM on September 15, 2017 [7 favorites]
Eyebrows is right, but the one nuance I would disagree with is that "you'll only be taxed once on the income." The credit you get in Home State for paying taxes in Remote State is not necessarily dollar-for-dollar. I am in the reverse situation - IL is Home State and NY is Remote State and IL has a complicated formula for how much credit I get for paying NY tax - it is less than $1/$1. I do this in Turbo Tax and think I am doing it right, but YMMV.
posted by Mid at 7:14 AM on September 15, 2017 [1 favorite]
posted by Mid at 7:14 AM on September 15, 2017 [1 favorite]
I'm not an accountant but I don't think Eyebrow is right - the OP is NOT working in Illinois. If they were doing the work in Illinois, they would owe taxes to Illinois and get credit from the state they live in (NY). But they're *not* doing the work in Illinois, they're doing the work in NY. If anything, they should get all the Illinois taxes refunded. But I'm not sure why they are paying them in the first place if they company knows what they're doing.
OP, you really should talk to payroll about this, and/or your own accountant. Maybe you will easily get all the money back from Illinois when you file your Illinois return, but it seems like maybe your employer is classifying you as *working in* Illinois, and this has the potential to cause you (and your company) trouble down the line because you're *not* working in Illinois.
A lot of people answering this question are applying not-really-the-same situations to yours - working in one state and living in another is different from living and working in the same state, regardless of where your company headquarters or office is located.
posted by mskyle at 7:19 AM on September 15, 2017 [2 favorites]
OP, you really should talk to payroll about this, and/or your own accountant. Maybe you will easily get all the money back from Illinois when you file your Illinois return, but it seems like maybe your employer is classifying you as *working in* Illinois, and this has the potential to cause you (and your company) trouble down the line because you're *not* working in Illinois.
A lot of people answering this question are applying not-really-the-same situations to yours - working in one state and living in another is different from living and working in the same state, regardless of where your company headquarters or office is located.
posted by mskyle at 7:19 AM on September 15, 2017 [2 favorites]
I live in VA and work for a company based in IL. My employer withholds VA state taxes from my paycheck. I only file with the IRS and with VA. I have no interaction at all with IL for tax issues.
Many years ago I worked for a company remotely that didn't want to do whatever paperwork was needed to withhold VA taxes, so they withheld nothing for state taxes and forced me to file quarterly estimated taxes with the state. I didn't work there long as that was ended up being a pretty good harbinger of what working for them was going to be like.
posted by COD at 7:20 AM on September 15, 2017 [1 favorite]
Many years ago I worked for a company remotely that didn't want to do whatever paperwork was needed to withhold VA taxes, so they withheld nothing for state taxes and forced me to file quarterly estimated taxes with the state. I didn't work there long as that was ended up being a pretty good harbinger of what working for them was going to be like.
posted by COD at 7:20 AM on September 15, 2017 [1 favorite]
I swear this is my last post here, but one more thing: if they're withholding your taxes wrong, what else are they doing wrong? Are you going to qualify for unemployment in NY if you get laid off? I'm concerned your company doesn't really understand how paying remote employees works.
posted by mskyle at 7:23 AM on September 15, 2017 [1 favorite]
posted by mskyle at 7:23 AM on September 15, 2017 [1 favorite]
I work for a company that has a lot of remote employees and I work remotely for them. They are headquartered in one state, I have never lived there, and I have never paid taxes to that state or had taxes withheld for that state. Eyebrows is very wrong, I'm sorry to say. You have no tax liability based on where your employer happened to be headquartered.
However, since your employer has (incorrectly) withheld IL taxes, you will need to file a non-resident return with IL next year to get that money returned to you. Also, be prepared to owe money to NYC and NY state when you complete that return next year.
Furthermore, your employer has an obligation to withhold taxes correctly, which they currently are not doing. I would discuss this with payroll.
posted by Automocar at 7:27 AM on September 15, 2017 [3 favorites]
However, since your employer has (incorrectly) withheld IL taxes, you will need to file a non-resident return with IL next year to get that money returned to you. Also, be prepared to owe money to NYC and NY state when you complete that return next year.
Furthermore, your employer has an obligation to withhold taxes correctly, which they currently are not doing. I would discuss this with payroll.
posted by Automocar at 7:27 AM on September 15, 2017 [3 favorites]
Best answer: Remote employee here. Talk to payroll. There should be no Illinois deductions on your paycheck.
State deductions cover more than just state and federal income tax (e.g. family leave, unemployment and disability insurance). Your non-payment of these will not generally get fixed when you file your tax returns, because they are not tax. Any advice saying this will all get figured out when you file in April is wrong.
This is an error by payroll and it need to get fixed by payroll. As others have said, it's an alarmingly basic error by payroll, so keep an eye on them!
posted by caek at 8:13 AM on September 15, 2017 [10 favorites]
State deductions cover more than just state and federal income tax (e.g. family leave, unemployment and disability insurance). Your non-payment of these will not generally get fixed when you file your tax returns, because they are not tax. Any advice saying this will all get figured out when you file in April is wrong.
This is an error by payroll and it need to get fixed by payroll. As others have said, it's an alarmingly basic error by payroll, so keep an eye on them!
posted by caek at 8:13 AM on September 15, 2017 [10 favorites]
Furthermore, your employer has an obligation to withhold taxes correctly, which they currently are not doing. I would discuss this with payroll.
I want to do more than favoriting this. If they're going to hire people this way, they need to actually be doing payroll appropriately for every single state they have employees in. That means not just withholding but appropriately paying unemployment taxes in every single state. The reason some people get state withheld for a different state is that the work is performed in that state but they don't necessarily live there. So, I might live in Council Bluffs, Iowa but work in Omaha, Nebraska, because it's like a ten minute commute, in which case I'll have Nebraska withholding but have to file in both Nebraska and Iowa to solve that. This is not your situation. Your work is being done in New York and they are obligated to file for you as a New York employee.
posted by Sequence at 8:16 AM on September 15, 2017 [3 favorites]
I want to do more than favoriting this. If they're going to hire people this way, they need to actually be doing payroll appropriately for every single state they have employees in. That means not just withholding but appropriately paying unemployment taxes in every single state. The reason some people get state withheld for a different state is that the work is performed in that state but they don't necessarily live there. So, I might live in Council Bluffs, Iowa but work in Omaha, Nebraska, because it's like a ten minute commute, in which case I'll have Nebraska withholding but have to file in both Nebraska and Iowa to solve that. This is not your situation. Your work is being done in New York and they are obligated to file for you as a New York employee.
posted by Sequence at 8:16 AM on September 15, 2017 [3 favorites]
Yes, I didn't read the post carefully enough at first, but you need to get payroll to fix this ASAP. You're probably being undertaxed, as I bet IL state < NY state + NYC tax. You're also probably not, for instance, paying into NY unemployment insurance. NY's unemployment insurance isn't actually that great, but you don't want to find yourself trying to file for IL's and getting rejected as someone who never worked in the state and then trying to retrieve the situation in NY when you've never paid into it. (I'm not 100% sure that would happen, but it's not a possibility you need hanging over you, solely because HR screwed up!) You may also be entitled to other benefits you're not getting, such as paid sick leave under NYC's sick leave law.
posted by praemunire at 8:32 AM on September 15, 2017 [1 favorite]
posted by praemunire at 8:32 AM on September 15, 2017 [1 favorite]
I handle payroll for remote workers. You should be getting withheld, and the employer should be paying, for the state you reside in (along with any local, school district, county, etc. taxes that may apply). Your employer is not doing this right, based on your description of the situation.
posted by randomkeystrike at 9:35 AM on September 15, 2017 [1 favorite]
posted by randomkeystrike at 9:35 AM on September 15, 2017 [1 favorite]
Yes, add me to the chorus of having payroll fix this. (It's one thing if you commute across state lines or are resident part of the year or move mid-year, but since you're a full-time remote employee they should be doing that properly.) But for this year, those are the forms you need.
An accountant can definitely take care of this without much trouble! But filing non-resident taxes to get a refund or credit (as the case may be) isn't too big a hassle.
FYI Illinois is suuuuuuuper slow to process refunds right now, so the sooner you deal with it the sooner you'll see that money, but you may owe NY before IL gets around to cutting you a check. (Hopefully payroll will take care of the problem and pay for its own mistake, but in case you're filing for last year and are going to have to pay quickly ... you're going to be floating the great state of Illinois some cash for like six weeks.)
posted by Eyebrows McGee at 9:38 AM on September 15, 2017
An accountant can definitely take care of this without much trouble! But filing non-resident taxes to get a refund or credit (as the case may be) isn't too big a hassle.
FYI Illinois is suuuuuuuper slow to process refunds right now, so the sooner you deal with it the sooner you'll see that money, but you may owe NY before IL gets around to cutting you a check. (Hopefully payroll will take care of the problem and pay for its own mistake, but in case you're filing for last year and are going to have to pay quickly ... you're going to be floating the great state of Illinois some cash for like six weeks.)
posted by Eyebrows McGee at 9:38 AM on September 15, 2017
Eyebrows description sounds correct *if* you live in one state and work in another, i.e. drive across a state line and physically report in for work there. You should not have to pay taxes for the home state of the company, or occupational taxes for the locality, not if you are remote. As others have stated, payroll's error also has potential consequences for unemployment insurance, and perhaps workman's comp, if they are not correctly classifying you.
posted by randomkeystrike at 9:38 AM on September 15, 2017
posted by randomkeystrike at 9:38 AM on September 15, 2017
Response by poster: Thank you. All the advice is much appreciated. The payroll manager is on it and taking care of things.
posted by kokaku at 10:41 AM on September 15, 2017 [1 favorite]
posted by kokaku at 10:41 AM on September 15, 2017 [1 favorite]
Just to reiterate, payroll taxes are paid in the state where the work is performed. My SO used to have to file returns in 4-6 states per year thanks to that. The multinational company she worked for always dealt with it correctly, thankfully, though we'd often get $60 back from one state and owe another couple $30. Usually $2 refunds, though.
The worst bit were a couple of states that didn't interact well together, thus requiring multiple rounds of "do return for state X, plug numbers into return for state Y, which adjusts something on X, necessitating adjustment of Y, necessitating another adjustment of X." And that was with software the company paid for. Thankfully, most of them are not that way, and as long as you ignore the very alarming running total refund/payments owed meter until you're completely done, it's just some extra questions and an extra 5-10 minutes per state.
(I did not enjoy seeing a tax owed that exceeded our net take home pay for the year the first time we went through the process..it was a lot of states that year)
posted by wierdo at 4:45 PM on September 16, 2017
The worst bit were a couple of states that didn't interact well together, thus requiring multiple rounds of "do return for state X, plug numbers into return for state Y, which adjusts something on X, necessitating adjustment of Y, necessitating another adjustment of X." And that was with software the company paid for. Thankfully, most of them are not that way, and as long as you ignore the very alarming running total refund/payments owed meter until you're completely done, it's just some extra questions and an extra 5-10 minutes per state.
(I did not enjoy seeing a tax owed that exceeded our net take home pay for the year the first time we went through the process..it was a lot of states that year)
posted by wierdo at 4:45 PM on September 16, 2017
This thread is closed to new comments.
posted by fluttering hellfire at 6:12 AM on September 15, 2017 [3 favorites]