How to file two Maryland returns for the same client

[AnnieK]

Hello friends.

I have a client that moved from Maryland to Delaware in 2024.  I will need to file part year returns for both states.  I will also need to file a non-resident return for Maryland as the client continued to work for their Maryland employer during the period of non-residence.  I can't find a way to add a second Maryland return.  How can I do this with ProConnect?  

Thank you much,

AnnieK

[George4Tacks]

The client is part year resident of each state. Indicate Delaware at the top of the Client Information screen for Resident State as of 12/31.

You will need to split some of the income between states $GrThttps://accountants.intuit.com/support/en-us/help-article/multi-state-taxes/entering-multi-state...

Additionally you will likely need to use N and S to not duplicate income. $GrThttps://accountants.intuit.com/support/en-us/help-article/state-taxes/understanding-source-colum...

As you get into this, you may want to contact support for more help. THIS IS HARD TO LEARN. 

[AnnieK]

Thanks George4Tacks.  I get that part and you are right, it is hard.  This situation is one step harder though.

The income that was earned in Maryland has to be split to two Maryland returns.  One for part year resident, and one for the income earned in Maryland while nonresident.

From what I see, the only way to do 2 Maryland returns would be to duplicate the federal return and file Maryland only on the second one.  I just want to make sure there isn't a better way.

[George4Tacks]

I don't do Maryland tax returns, but that seems weird. I have never seen a state require 2 returns. From what I see in quick read of the instructions is you would file a RESIDENT return for MD and a part year for Delaware. You would prorate all income on MD to indicate income taxable to MD and do similar proration for DE. There may be a credit paid to another state for the duplication of income in MD while a DE resident. 

Maybe @sjrcpa has some experience

[AnnieK]

Yes, it seems weird to me too, but the instructions clearly state I have to file two.  Here is a copy/paste of the instructions.

IF YOU ARE A:

Taxpayer who moved into or out of Maryland during the tax year and received income from Maryland  sources while you were a nonresident of Maryland.

YOU SHOULD FILE:

Form 505 Nonresident Return and Form 502 Resident Return

[sjrcpa · Accepted solution]

@AnnieK  You are reading correctly and your proposed solution is viable.

However, I have been known to make it work by filing a 502 part year return and including as MD income the MD source income earned while a nonresident.

CAGMC.

[rbynaker]

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@sjrcpa wrote:

@AnnieK  You are reading correctly and your proposed solution is viable.

However, I have been known to make it work by filing a 502 part year return and including as MD income the MD source income earned while a nonresident.

CAGMC.

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VA has a similar rule.  When I've encountered it, it's always been when the only income after move-out has been rental income that ended up as a suspended PAL anyway.  The only way I know to do this (in any software I've worked with) has been to paper file the second return.  It's jumping through a lot of hoops for little to no tax difference (maybe in MD with the "local" tax surcharges potentially being different between PY and NR but even then I'd think we're looking at pretty small variances).

[rbynaker]

Oh wait, time out.  Sorry, I got lost in the trees and missed the forest.

Are we sure the wages earned by a DE resident working from home in DE for a MD based employer (assuming not stepping foot into MD for work) are MD source income?

@sjrcpa should chime in if I'm wrong (or even if I'm right, it's always good when SJR chimes in to help!)  I don't think MD has a "New York" style telecommuting rule.  If you're not physically working in MD I don't think it's MD source income (regardless of where the employer's office is).

Rick

[sjrcpa]

Rick, you're right.

I missed what OP was claiming as MD source income earned while a nonresident. 

[AnnieK]

Delaware is one of a handful of states that has the "convenience of the employer" rule.  Taxpayer works remotely at home by their own choice.  They could work in the Maryland office if they wanted to.  Delaware would only consider this Delaware source income if the employer forced the taxpayer to work at home.

All that said, I am new at this.  Please point it out if my understanding of it is wrong.

Thanks!

Annie

[rbynaker]

But Delaware doesn't get to write tax laws for Maryland.  So I think you have DE source income under MD law, MD source income under DE law and (inevitably) DE tax on the worldwide income of its resident for the second half of the year (which would be eligible for a credit for taxes paid to MD but MD isn't taxing the income so that will be $0.)

If the employer didn't change withholding from MD to DE then have the client pull some paystubs for the relevant pay period and split the income between MD residency and DE residency.  If they do go into the office for meetings, etc. there could be some MD source income after moving to DE but those are facts not in evidence here.

Welcome to the multi-state tax party (and why I got rid of almost all of my non-VA clients when I scaled back a few years ago!)

Rick

[AnnieK]

Thank you everyone.

I have gotten paystubs that correspond with the time of the move.  

The thing that got me to look into this further was that both the husband and the wife's employers withheld in the employer's states once the taxpayers moved to Delaware.  One is a federal government agency that is in Maryland.  The other is a huge government contractor in Virginia (this withholding changed from MD to VA when notified of the move).  At first I thought that both had mistakenly withheld for the wrong states but that bothered me too much to let it go.  The likelihood that they were both wrong and I was right was just too small.  🙂

This is for next year so there is plenty of time for me to figure it all out.

[AnnieK]

All of your responses had me research this even further and I don't need to file the MD non-resident return.  I have asked the taxpayer to contact their payroll department again and change the withholding to DE if possible, or get the form to exempt them from MD withholding.

That makes it simpler.  Thanks all!

AnnieK