How to allocate multi-state W-2 double and separate taxed income in Lacerte

This article will help explain the steps to allocate multi-state W-2 double and separate taxed income, along with examples.

Double-taxed income

Example

John Doe is a part-year resident of California. During the year he moved to Oregon but continued to commute to his job in California. He received one W-2 from his employer which reflected the following information:

• Federal wages: $25,000 ($5,000 of which was earned as an Oregon resident)
• California withholding: $1,000
• Oregon withholding: $200

Because the wages were from a California source, John must report the full $25,000 to California. Only the $5,000 John earned while he was an Oregon resident is taxable to Oregon. This is an example of double-taxed income.

Steps

1. Go to Screen 10, Wages, Salaries, Tips.
2. Press Ctrl+E while in the field (1) Wages, Tips, Other Compensation.
3. Enter 25,000 in the Amount column on the first line.
4. Select CA in the State column.
5. Enter 5,000 in the Amount column on the second line.
6. Select OR in the State column.
7. Select S in the Source column on the second line.
   • The S is needed because the $5,000 should only be allocated to Oregon (S = State Only; N = Federal Only).

Results

The federal and California returns will reflect total wages of $25,000. The Oregon nonresident return will reflect resident wages of $5,000 from Oregon sources. The federal Schedule A will reflect the combined state withholding of $1,200. If you had omitted the S entry from the Oregon wage amount, the federal and California returns would erroneously reflect total wages of $30,000.

Separately allocable income

Example

Assume the same facts as in example 1, except John Doe was transferred to his company's office in Oregon during the year. His W-2 showed the following information:

• Federal wages - $25,000 ($20,000 earned in California, $5,000 earned in Oregon)
• California withholding - $1,000
• Oregon withholding - $200

As a part-year resident of California, John must report to California only the $20,000 he earned in California. As a part-year resident of Oregon he must report to Oregon only the $5,000 earned in Oregon This is an example of separately allocable income.

Steps

1. Go to Screen 10, Wages, Salaries, Tips.
2. Press Ctrl+E while in the field (1) Wages, Tips, Other Compensation.
3. Enter 20,000 in the Amount column on the first line.
4. Select CA in the State column.
5. Enter 5,000 in the Amount column on the second line.
6. Select OR in the State column. 

Results

The federal return will reflect total wages of $25,000. The California part-year return will reflect wages from all sources of $25,000 and wages from California sources of $20,000. The Oregon part-year return will reflect wages from all sources of $25,000 and wages from Oregon sources of $5,000. The federal Schedule A will still show $1,200 in the "State Taxes Paid" field.

See Allocating W-2 wages and withholdings for multi-state return for more information and tutorial.