Multi State Unemployment

[Neeruam]

I have a client that is a full year resident in one state and works in another.  They drew unemployment from work state and had state taxes withheld.  The unemployment is taxable in the state they live.  Getting critical diagnostic #43738 that there must be wages for tax withheld.  This is not the case and the returns are correct - Anyone else having this issue and how did you fix it?  Thank you.

[itonewbie]

Unemployment compensation is generally sourced to the state of payment and not covered by reciprocal agreements.  This means taxes will need to be paid to the former state of employment and a credit will be claimed in the state of residence.

Why do you think PTO is wrong?  Did you read anything different in the reciprocal agreement of the states in question?

[Neeruam]

I am not sure I am reading your response correctly.  There is no reciprocal agreement.  They are a full year resident in WI and work in MN.  Received Unemployment from MN and paid MN Tax.  The Unemployment compensation is taxable in WI and they should get credit for the tax paid to MN, and pay taxes to WI.  I entered the Unemployment as taxable in WI and entered the state taxes as MN tax paid, thus I believe what you said and I want.  But that is giving me an error, telling me MN requires a 7 digit State ID (done) and a MN income amount when there is a withholding amount.  

[itonewbie]

Yes, we're on the same page then.  I'd just put it slightly differently - pay tax to MN (as they have the primary right to tax that income) and claim a credit on WI return.

In your original post, you said the diagnostic says you must have wages for the withholding.  Your latest post now says the error tells you "MN requires a 7 digit State ID" and that is done.  What exactly does the diagnostic say and what is "done"?

Your latest post also says "MN income amount when there is a withholding amount".  Question is: Did you code the unemployment income to MN or WI?  You need to make sure it is coded to MN.

[Neeruam]

I coded the income to WI and the tax to MN - the reason for doing this is I filed 2 amended returns last year for this same situation as the states corrected the returns and told my clients they had to record unemployment income as taxable in the state they lived regardless of what state paid it.  Works fine unless they chose to have state taxes taken out. 

[itonewbie]

Ah, thanks for the additional context.  I just checked and see that MN is one of those states that do not tax NR on unemployment compensation paid by the state.

Here's what you need to do to overcome the diagnostic:

1. Under Income > Tax Refund, Unempl. Comp. /1099-G > Federal > Unemployment Compensation > Total received (1): Code the amount to MN;
2. Scroll down to State > Payer's identification number {MN}: Enter the 7-digit ID from the 1099-G;
3. Under State & Local > Part-Yr./Nonres. Information > MN part-Year/Nonresident Info > Schedule M1NR Minnesota Portion Overrides > Other income [Override]: Enter -1 (this means 0 for PTO/Lacerte)

This will cause PTO to recognize the unemployment compensation as being sourced to MN but to report on Sch M1NR that $0 of that income is taxable to MN.  Sch M1W will report the unemployment compensation and MN SIT as on the 1099-G.  This MN SIT will then flow correctly to M1 as a credit, which will be refunded assuming your client has no other MN taxable income.

[Neeruam]

Thank you for responding.  Unfortunately all of his W2 income is MN but his misc and self employment, is Wisconsin.  I did try what you suggested and this still reports the UC on Sch M1W, which is the form the department of revenue had be change last year.  If I were completing the return by hand, it is accurate by coding the UC to WI.  I have done an over-ride on the diagnostic and hope we get zero notices this year.  

[itonewbie]

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@Neeruam wrote:

Thank you for responding.  Unfortunately all of his W2 income is MN but his misc and self employment, is Wisconsin.  I did try what you suggested and this still reports the UC on Sch M1W, which is the form the department of revenue had be change last year.  If I were completing the return by hand, it is accurate by coding the UC to WI.  I have done an over-ride on the diagnostic and hope we get zero notices this year.  

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W-2: What I suggested will not impact the coding for W-2.  You should make the entries as you normally do.  A credit will then be claimed on the WI return for taxes paid to MN.

UC: I did mention in my post that "Sch M1W will report the unemployment compensation and MN SIT as on the 1099-G."  This is intention as this schedule should reflect the income and SIT reported on the 1099-G.  The sourcing, on the other hand, is reflected on Sch M1NR.  If you follow my suggestion, Sch M1NR will show $0 for UC.

This is a workable solution and there is no reason why you would want to override the entries/calculations by hand.

[aarora]

I have a slightly different situation and I am not able to figure out how to make the proconnect work. I will appreciate any help. 

Tax payer gets unemployment compensation from NY but in the middle of the year moved to NC. Since both NY and NC tax UI, I need to show this amount in the part year schedule of both NY and NC. How can I code UI to both the states? When i navigate to State & Local > Part-Yr./Nonres. Information >NC Part-Yr./Nonres. Information, i don;t see any place to adjust the income. Nor can I find a place to enter UI in NC modification

Thanks