US TaxFilter: Dividing between two states

April 8, 2023 6:46 PM

YANMTaxProfessional: My partner started the year in CA, but moved to MA in late summer. They stayed at the same job--which is fully remote--through the move. However, their company continued to report all income to CA and to withhold taxes to CA; no taxes were withheld to MA. Fine enough--except their W-2 includes entries for CA and MA, but they don't match the actual distribution of work! What's a tax payer to do?

So, in short: they earned (less than, but I'm making the numbers round for multiple reasons) $100k at the company this year. If you summed up the pay stubs, it would divide as something like $60k in CA, $40k in MA, going off of where they were when they performed the work (both being physically in MA and having a residence there). Their W-2, however, lists state wages for CA of $100k, and for MA of $10k. This is both, in sum, larger than the total amount earned this year and not reflective of the income source locations. (That MA had no withholdings is a separate issue, but one that should be corrected by just paying taxes).

What's the way around this? Manually figure out the earned income state-by-state (the last pay stub reports a YTD income that doesn't agree with the W-2, though, either, by about $1k) and report those? Ask HR for a new W-2 (and file for an extension)? Something else?

(I have also advised them to talk to their HR department and fix this for next year, although I fear they are now committed to doing CA taxes at least one more time...)

posted by miguelcervantes to Work & Money (2 answers total)

Is the employer in California? This page talks about partial year resident scenarios, but it is not clear about remote work performed for California companies. So, they might have withheld Cali taxes to be safe in case your partner did not change their residence or changed it back.

I first would question HR about why the last paystub doesn't match the W-2 because there may be an explanation that does not require a correction of the amount, like some taxable benefits as one example. While asking, also see if they can explain the state income amounts. California may have different reporting rules than Mass or maybe a there was a delay in switching the residency state over.

Be prepared for this W-2 to be correct and to get a refund from California while owing Massachusetts, which it sounds like you are. The California return should allow you to reduce the income in some way as a part year resident or based on taxes you pay to another state.
posted by soelo at 9:11 PM on April 8, 2023

i was suggest you start with HR because having a W2 that matches the income that you are reporting will make your life much, much easier. Note that you can get an extension on filing but you need to make sure that you have paid enough in estimated taxes or withholding to cover the amount due. So, he will want to make a 2022 estimated payment in Mass. asap.
posted by metahawk at 2:28 PM on April 9, 2023