How do we correct W-2 Income Sourced to Maryland when W-2 is incorrect?

[mfriedman]

When clients have a W-2 with income sourced ONLY to Maryland and the client was a Part Year Resident of Maryland and another state, how the heck are we supposed to correctly allocate the income when the PY Allocation Worksheet creates duplicate income when allocating the income to the correct resident state.

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.

[rbynaker]

Change the state amounts on the W-2 Wks.  Then it flows correctly to the PY Wks.  I always have the client give me paystubs for the pay period covering the move date and one for year-end just to make sure there's nothing weird (maybe prorated bonus payments?)

Rick

[rcooley25]

How does that work when the W2 clearly states that the income was earned in one state?  Since the state gets a copy of the w2 from the employer and it states the wrong dollar amount wont Maryland come after him for under reporting his income?

[rbynaker]

Happens a lot here in the "DMV", I've never had a state come back with a letter (but just in case they do I have paystubs on file supporting the amounts earned in each state.)

Note: Tax jurisdictions around here have reciprocity agreements whereby you're taxed where you live instead of where you work.

[sjrcpa]

If there is MD Correspondence, point out to your client that he didn't inform his employer of his new state of residence in a timely manner.

[mfriedman]

Yes, but the State of Alabama in this case doesn't have reciprocity with the State of Maryland, neither do 46 other States

[mfriedman]

Agreed, but at this point it's too late and we must deal with correcting it on the State returns

[rcooley25]

While I appreciate the response regarding my earlier post from some of my fellow tax preparers I have to stand by my earlier statement that this can not be corrected simply by changing how the income is reported on the W2. If x amount of dollars are reported on the w2 as Maryland income then Maryland is going to expect  same amount shown on the Maryland return. The best way for this problem to be solved is to get a corrected W2 from the Employer>

[taxshack]

Regardless of where they were working, where was the income earned?  Were they working in Maryland even though they lived in another state?  It very well could be reportable in both states. 

Otherwise, if they were working remotely then payroll needs to be corrected and so does the W-2.

This doesn't sound like a Proseries issue to me, just a payroll one.

[rcooley25]

I agree with you. This is a payroll problem and not intuit. This is my 54th tax season. Never in my previous tax seasons have I seen screwed up W2s like I have this year. It appears that many payroll people at some of these companies are High School Drop outs.

[qbteachmt]

"how the heck are we supposed to correctly allocate the income"

In general, you don't try to take the State reported amounts and expect them to add to 100% or to the Fed amount. Some States expect you to report the total (same as Fed) and handle the presence test later. Some will accept only the amount allocated on the W2 by the payroll service, who typically do this very well and don't need to be overridden by the tax preparer. Some will credit back taxes paid in another State, and some have a reciprocity agreement, and some will tax anything they can, and some don't tax anything.

"when the PY Allocation Worksheet creates duplicate income when allocating the income to the correct resident state."

Are you sure that is how each State wants it to be reported?

"when the PY Allocation Worksheet creates duplicate income when allocating the income to the correct resident state."

I don't see where the other State is named. It seems your person is not a teleworker, then; they were a MD resident. Yes, they should have notified payroll accordingly.

[rcooley25]

I am not aware that his situation differs from state to state. What I am certain of is that if I enter a w2 information while preparing an income tax return there is no way in hell that pro basic will let me E file that return if the state information does not equal the federal.

[qbteachmt]

"situation differs from state to state"

Now that I had time to do some research, this is a reference for partial year MD residency:

https://www.marylandtaxes.gov/forms/Personal_Tax_Tips/tip52.pdf

"Complete the name and address information at the top of Form 502."

"Place a "P" in the box and show the dates of residence in Maryland"

"Enter on line 1 the adjusted gross income from your federal return."

"Include on line 13 any income received during the part of the year when you were not a resident of Maryland."

In other words, you don't change the W2. Adjustments are accounted for elsewhere.

And you might even have a taxpayer with multiple pages of W2 all from the same employer, because that is how payroll would break out the reportable amounts by State. That's why you don't add them up. There will be States where the full Fed amount is also reported to that State.