Multi State Returns

[SEtaxpros]

I'm having some issues filing a NY and CT return.

TP was living and working in NY until 8.18.2018 then moved to CT where she began living and commuting to NY to work, sometimes working from home (convenience so not CT sourced income).

1) I cannot get the withholding to pull through onto the NY tax return. All her income is NY sourced and currently it is showing as $0 withholding and a large liability but she should actually show a refund.

2) CT is showing my taxpayer as being a part year resident. She changed her legal residence to CT in August but spent <183 days in CT during the year and she is not domiciled to CT. From what I read I need to allocate her residence period earnings to CT (18.8.2018) and then claim credit for NY taxes paid. Ok I understand this but I cannot, even following the Intuit vids, allocate wages as double taxed without reducing the NY allocation or increasing the Federal amount...….what am I missing?!?! I'm completely baffled because there is not much input on the State Income screen 50 is greyed out.

Please help. Thanks.

[itonewbie]

Take a look at the technical discussion in a recent thread.  Your client is kinda in a bind.

CT changed it's law about two years ago to tax only NR telecommuters from the states that apply the so-called convenience of the employer rule as a **bleep**-for-tat strategy.  They did not, however, change their regulations on other state tax credit to source their own residents' telecommuting compensation to their employers' state so as to allow credits to be claimed.  This means residents of CT telecommuting with a NY employer but not for the convenience of the employer can only claim credits on the CT return for actual workdays they have in NY but not the telecommuting days in CT.

https://proconnect.intuit.com/community/proconnect-tax-online-discussions/discussion/re-client-works...

[itonewbie]

@IntuitAustinT I T - f or - T A T  is also censored?  When that ***bleeped out*** word is used in this context, it doesn't have the same meaning.  This is another case where Intuit is taking this censorship business a bit too far, IMHO.

[IntuitAustin]

I edited the filter to allow that word to flow through. The filter isn't able to look at context, and just blocks the instance as it sees it. Thanks for letting me know!

[itonewbie]

Thanks, Austin!

[sjrcpa]

If we have to have a dirty word filter, maybe it should be limited to George Carlin's 7 words. (oh, I looked it up and T I T S is one)

[SEtaxpros]

Ok thanks so much for the old thread.

I've read a bit more of the regs in detail after you mentioned that. 

So basically:

• CT will tax her telecommuting days as CT sourced income during her period as a resident there. 
• CT will not give credit for NY taxes on those days because it does not honor the same telecommuter rules as NY on it's R/PY taxpayers only NRs. 
• NY taxes all workdays as NY sourced based on the convenience rules. 

So ultimately she will have a CT liability on those telecommuting days.

In Lacerte - I will need to subtract all income related to NY workdays as an adjustment to the Federal AGI leaving in her CT telecommuting days.  

The NY return will have the whole income amount with no wage allocation to CT.

Any idea why the NY withholding will not be pulling through to the State return?

[itonewbie · Accepted solution]

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@SEtaxpros wrote:

...So ultimately she will have a CT liability on those telecommuting days.

In Lacerte - I will need to subtract all income related to NY workdays as an adjustment to the Federal AGI leaving in her CT telecommuting days.  

The NY return will have the whole income amount with no wage allocation to CT.

Any idea why the NY withholding will not be pulling through to the State return?...

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Your first statement above is correct.  But what are you trying to do with the following two statements?  And what NY tax are you trying to pull through to the CT return and for what purpose?

If your client had actual NY workdays, I can see a credit being claimed on the CT return for those particular days but you will need to manually override NY source income subject to CT tax and the related NY tax liability on the input screen for other state tax because Lacerte will otherwise consider the full amount to be eligible for credit.

[SEtaxpros]

Yes that's how I have the return now. NY workdays are being credited and the CT days are being taxed. 

I just could not figure out the combination of input boxes to adjust the CT State return for Fed AGI, CT AGI and get the sourcing to show correctly but it looks right now. 

The NY withholding was not pulling through to the NY State return but a restart seemed to work fine......tried and trusted method of fix!

Thanks for your help. I appreciate it as always. 

[itonewbie]

Something doesn't sound right.  There should be no adjustment against Fed AGI, not on IT-203 and not on CT-1040NR (or any of its schedules).

All of the telecommuting compensation (plus NY-source income received during CT residency - e.g. year-end bonus) should be reflected on CT-1040AW Column B.  Whether there's any CT-source income in Column D would depend on whether she had any CT workdays during the NR period.  The total of those two columns will flow through to CT-SI, which will be used to determine CT-tax on an as-if basis on CT-1040NR.

Unless your client had actual NY workday during her CT residency or received income accrued to NY, there should technically be no creditable NY tax.  And if she did have NY workdays or income accrued to NY, you will need to override the input for other state tax credit to limit the application.

This won't be good news to your client.

[SEtaxpros]

Ok should the amount in column B increase the total in Column A?

If not then that's what I'm having an issue with.

It's adding to the Federal AGI which is like it's double counting the earnings from the period of residency in CT. 

[itonewbie]

Yes, that's the whole point.  That telecommuting income IS subject to double taxation.  You may like to read my initial response and the thread I cited for a better understanding of the underlying issue.

[itonewbie]

In this example, $65k reported on Column B would be the telecommuting wages during CT residency.  $5k in Column D would be NY-wages sourced to CT workdays during the CT-NR period.  The total of $70k will then flow to CT-SI and CT-1040NR as wages taxable to CT.  Since CT taxes PY/NR on an as-if basis, the entire $125k is reported in Column A and does not get adjusted.

On the IT-203, you will see the entire $125k reported as taxable wages under both the federal for the as-if resident tax computation.  The NYS column has the same amount because NY regulations source to NY both the $60k in wages earned during NYS residency and the $65k in wages earned during her CT residency (and NYS-NR) as a telecommuter for her NY employer.

It is clear that $65k will be subject to double taxable because of NYS' convenience of the employer rules.

[SEtaxpros]

I understand the double taxation part. NY and CT will tax the telecommuting days. That's not the issue.

What I don't understand is the following math in Lacerte:

Wages from all sources $50,000

Of the above total wages amount earned in CT residency period from NY + CT sources $20,000

Wages from Telecommuting days during residency in CT $5000.

1040AW shows:

Column A $50,000 + $20,000 =$70,000

Column B $20,000

Column C $50,000

Column D $0 (correct)(CT sourced income while NR)

CT-SI shows $20,000

1040 PY/NR shows:

CT Federal AGI $50,000

CT additions to AGI $20,000

CT tax calculated on $70,000 total earnings. 

CT sourced income $20,000

Income from NY sourced $15,000 for tax credit

That doesn't seem right. Taxpayer did not earn $70,000 in the tax year. Anywhere I put the CT resident earnings is adding to Federal AGI and tax is being calculated on it. If I allocate on the State tabs or the Federal wages tabs is changes the Federal AGI and I don't think that's right. 

I must be putting something in the wrong place but I just can't see anywhere else I can allocate it without knocking out the other forms AGI.  

[SEtaxpros]

Yes this looks right but it's not what my CT allocation is doing. 

The NY return is right because all income is from a NY source. 

The CT allocation return is not playing ball. 

[SEtaxpros]

What input boxes do you use to get the $125K to split into the $65K and the $60K?

Because I feel like I've tried everything and it probably shouldn't be this difficult but I'm grossly missing something in Lacerte. 

[itonewbie]

That's because of how you coded state source wages.  When you are on Screen 10 and enter wages for Box 1, you should hit Ctrl-E.  You will need three lines for this.

1. $50,000 with US for State and Code N for Source;
2. $50,000 with NY for State and Code S for Source; and
3. $20,000 with CT for State and Code S for Source.

This will make sure the other $50k coded for NY doesn't flow through to CT and vice versa.