Am I screwed?

June 29, 2006 3:40 PM

TaxFilter: Will this unusual withholding situation get me into trouble?

My employer (for whom I work as an employee, not a contractor) is located in NYC. I was also located in NYC until this June, when I moved to Los Angeles. I just found out that, despite my repeated warnings, my employer has neglected to withhold my California state taxes for the month of June, and has instead withheld taxes for New York state.

(I know that I may owe nonresident taxes to New York for the rest of this year's income, depending on whether it's considered to be from a New York source; my question is specifically about the timing issue.)

I intend to officially declare myself a NY resident for January-May, and a CA resident from June onwards, since this is my actual real-world situation. Presumably I will owe CA some taxes from June. Assuming I pay the correct amount with my return next year, will they be upset about this money not having been withheld?

(And yes, I will be calling the tax authorities in both states before I decide on any course of action.)

posted by equalpants to Work & Money (4 answers total)

I doubt this is an unusual situation. People move, and employers screw up withholding, all the time.

The only potential problem I could see is if CA charges you a penalty for under-withholding -- you would find out at the end of the year, when you do your taxes, and discover that you owe CA more than a certain threshold amount. I doubt that one month's pay would be enough to set you over the limit, and they give people a free pass under lots of circumstances anyway(at least the Federal tax system does). But I would recommend looking it up anyway.

(If you make lots of $$$ I suppose you could suddenly fall into the case when you have to make quarterly payments... but again that's unlikely for one month worth of paychecks.)

NY isn't going to care that they got overpaid. They'll refund you at the end of the year, and that's that.
posted by xil at 3:56 PM on June 29, 2006

California won't be upset about the tax not having been withheld; they'll be upset about not receiving the tax. You're obligated as a private citizen to be up to date with your tax on a quarterly basis. If you are not having tax withheld on your income, you need to make estsimated tax payments.

The form you need is Form 540-ES. Take a good guess at what your tax liability is going to be, then send it in; be aware that if you underguess, you're liable for penalties on the underpaid amount.

If you moved and took a new job, you can deduct the cost of your entire move against your Federal taxes, by the way, so make sure you hold on to all those receipts.
posted by ikkyu2 at 3:57 PM on June 29, 2006

I did this last year, by the way (moved from NY to CA), and TurboTax handled it all very nicely, even the rather complicated bits involving the IT-201 part-time resident return. Unless you itemize, I can recommend TurboTax for this purpose with a clear conscience.
posted by ikkyu2 at 3:59 PM on June 29, 2006

Jeez, no, there's nothing to worry about. So you might up owing a bit to California, and getting back a bit more from New York - so what? You're in the ballpark for both places. Underwitholding penalties have all sorts of outs. For example, if you withheld at least as much in 2006 as you had in tax liability for 2005, no penalty is possible. (If your income is quite high, it's actually 105% or 110% or something like that.) Since your California tax liability for 2005 was zero, the minimum you must withhold for 2006 in order to avoid penalties is zero.

If you're really anal, you can increase the amount withheld from each paycheck until the end of the year. File a new W-4 (or the California version of it) and claim fewer exemptions than you actually merit. This will change how your withholding is calculated, taking more out of each paycheck and guaranteeing that both California and New York will owe you refunds when you file your return.
posted by jellicle at 4:19 PM on June 29, 2006