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Allocation of a return between two states.

dneville9720
Level 2

Client was a resident of Maryland for first 9 months, resident of West Virginia for last 3 months of 2021.Worked in Maryland and had withholding of taxes only in Maryland for the whole year. How to best allocate to these two states? Do I have to do one particular state first and then the other? I appreciate any help offered.

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dneville9720
Level 2

Rick:

I agree with you. After thinking about it, Your guidance made much more sense. I followed it and It worked!!!

Thanks again for your help. Very much appreciated!

Dennis

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rbynaker
Level 13

I've seen these payroll mistakes all the time, especially here in the "DMV" (DC, MD, VA).  If I know about it I'm pretty diligent about advising clients to notify their HR/Payroll department as soon as they move.

But more often than not, I find out about it after the fact.  Have them pull paystubs around the time of the move.  You should be able to figure out MD source based on YTD before the move and maybe have to prorate wages if they moved in the middle of a pay period.  Everything after the move will be WV source because of the reciprocity agreement between MD and WV.  Around here folks are taxed in their resident state rather than the state where they work.  MD has reciprocity agreements with DC, PA, VA, and WV.

You'll need to convince ProSeries by putting the appropriate amounts in the state section of the W-2 (so basically ignore what's entered there and put the correct wages).  Then you'll fill out the PY section of the Info Wks (scroll way down and put the dates for each state).  That will let you open up a PY allocation Wks (linked to from that area).  If you're lucky, the wage data pulled correctly from the W-2.  When you finish your federal 1040, fill out the rest of that PY Wks to enter interest, dividends, etc. in their appropriate state.  After that you can open either state, shouldn't matter which one you do first.

Hope this helps, it's kind of a cumbersome process but I don't see a better way around it.  I explain to folks on intake that it usually takes 3x as long to do the part-year returns.  Around here the state returns practically prepare themselves once you've done the federal.  But with PY you have to do the federal and then you have to do each state basically from scratch since you have to tell the software how to source each piece of income.

Rick

dneville9720
Level 2

Rick:

Thanks so much for your reply. I did find on the marylandtaxes web site of the Md Comptroller in Personal Tax Tip #56 which states "If you are a resident of West Virginia who works in Maryland, you are exempt from Maryland income tax withholding, regardless of any length of time you live in Maryland. It also goes on to say that you should file a nonresident MD form 505 to obtain a refund of the taxes withheld. I assume from that that you would then include all of your income in WVA. This kind of makes sense since the reciprocal agreements I believe are intended for you to only have to file one return and that in your resident state. Does this make sense to you even if this person lived in Md for 9 months and WVA the last 3 months of the year? Thanks again for your help... really appreciated.

DNeville

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rbynaker
Level 13

No, you're definitely looking at a Part-Year MD / Part-Year WV situation.  If (when) MD withholding continues into 2022 for your WV resident you will file a MD 505 (Non-Resident) return for 2022 to get the MD W/H back.  But for 2021 it's a MD 502 AND a WV IT-140.

dneville9720
Level 2

Rick:

I agree with you. After thinking about it, Your guidance made much more sense. I followed it and It worked!!!

Thanks again for your help. Very much appreciated!

Dennis

mfriedman
Level 2

This is absolutely ludicrous as NONE of us want to create a fabricated W-2 within ProSeries that doesn't match the W-2 Form that was filed with the IRS!!

Is this what Pro-Series is truly recommending to solve the Maryland Part-Year Income problem where source income on the W-2 is incorrect and the income needs to be sourced to multiple states including Maryland.

The problem seems to only be unsolvable with Maryland as other states allow users to exclude duplicate income that may be created using ProSeries PY Allocation Worksheet as the PY Allocation Worksheet ALWAYS wants to include the income as its sourced on the W-2 no matter if it's right or wrong which creates duplicate income when entering the correct income for the source and resident state.

Whomever is responsible for the State of Maryland programming needs to take a serious look at this matter and fix this once and for all as it's been a problem for years!!

By the way tech support has washed their hands of this problem and states that there's nothing they can do.

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sjrcpa
Level 15

@mfriedman As I tried to point out in your other post, your client created this situation by not having his employer change his resident state. https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/how-do-we-correct-w-2-i...

You've been given good advice on how to prepare the tax return in the software. Follow it.

The more I know, the more I don't know.
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mfriedman
Level 2

Suggest you cut the attitude as the advice that has been given to date, other than "contact the employer's payroll department" is NOT advice that any sane tax preparer would follow. Many states have the ability to allocate income from another State (See New Jersey, New York, Alabama, North Carolina, etc).  Why is it so difficult for ProSeries to complete this task for Maryland

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