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ILLMAS

Multi-state W-2

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Scenario:

TP is an IL resident and earned federal total wages of $100K, here are the earning by state:

CA  $4K

NY $6K

MA $13K

WA $2K

IL $100K

TP will be considered a NR for all the states except IL, here are my questions:

If I were to add up the total wages per state, it appears the TP earned $125K, was the IL W-2 prepared incorrect (should of been for $75K)?

If I enter the state wages into ATX as reported on the W-2, pretty much everything balances out, however I feel the TP should get a credit for taxes paid to another state on his IL tax return and the state of IL should refund them the taxes on $25K, do you agree?

Thanks

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49 minutes ago, ILLMAS said:

was the IL W-2 prepared incorrect (should of been for $75K)?

No, the IL wages of $100K would be correct because the TP is a full year resident and all wages will be taxable in the state of residence.  

None of the other states listed have reciprocity with IL.  In order to claim a credit for taxes paid to any other states, the TP is required to file a return in any of those other states and have a tax liability for which the credit may be claimed. The credit for taxes paid to other states is only on the income that is taxed in both that other state and that is also taxed by the State of IL, and that is how the TP offsets some of the IL tax liability.

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2 hours ago, jklcpa said:

No, the IL wages of $100K would be correct because the TP is a full year resident and all wages will be taxable in the state of residence.  

None of the other states listed have reciprocity with IL.  In order to claim a credit for taxes paid to any other states, the TP is required to file a return in any of those other states and have a tax liability for which the credit may be claimed. The credit for taxes paid to other states is only on the income that is taxed in both that other state and that is also taxed by the State of IL, and that is how the TP offsets some of the IL tax liability.

And that, my friends, is what we call "job security."

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IL will compute tax on total AGI and give credit for taxes paid to the other states up to what IL would have charged.  CA and NY likely have higher rates than IL, so your client will only get partial credit for those states.  The other states will calculate tax on the income earned in that state at the rate that applies to the taxpayer's AGI.  For example, someone making $6k in NY would probably have no taxable income there, but someone making $100k would be taxed at over 6%, which is the rate that will apply to the $6k.  I don't think WA has a state income tax, so all of that income will be taxable in IL with no credit.  Getting the logic of this doesn't make it easier.  I always have to fight whatever software program I'm using to get it to come out right.  When I was at HRB there was an "all states specialist."  I want one of those!

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A multi state employer that looks to be properly reporting!  It would be interesting, to me, to know if the employer is profitable enough in the "other" states, to make it worthwhile to have employees and filing obligations in those states.

I once used a real address by mistake in sample data for a NYS45 paper form (to get approved to print on plain paper).  It took about a year to prove to NY that I was not a NY employer.  The sample form was sent to their forms approval department, not their processing department, yet they still elected to try to ding me.

 

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