Handling Multi-State Returns in ProConnect™ Tax Online

Many tax preparers find themselves completing the federal tax return and one state return for their clients. Usually, that sole state return is in your home state, and you are familiar with all the ins and outs of its preparation. However, situations arise when your clients have lived, worked or earned income in another state. In these situations, Intuit® ProConnect™ Tax Online makes it easy to prepare a multi-state return, while ensuring your clients are getting the appropriate credits and making use of any reciprocal agreements between the states.

Non-Resident of a State

Typically, non-residents reside in another state, but earn income in the non-resident state. A few key inputs will establish a state as a non-resident state. On the “Profile” tab, you will need to add all of the states that need to be prepared, including the resident state and all non-resident states. You can add states in ProConnect Tax Online by clicking on the “Add a state return” dropdown bar and selecting the appropriate state. Repeat this process until you have added all of the states you need.

Tip: If you have added too many states, selecting the state and clicking the “trash can” in the actions column will remove the state from the return.

After you have selected the states you need, head to the “Input Return” tab. Make sure to select which state is the resident state, as of Dec. 31, in the “Resident Status” section of Client Information. That state is treated as the resident state, while all other states added will be treated as non-resident states. If there is only one resident state, then make sure to check the box labeled “Full Year Resident.” We will talk about this input again when discussing part-year residency below. Also, ensure that the checkbox for Multi-State Return is checked for “Yes/True.”

Tip: If the taxpayer is a resident of a state that does not require the filing of an income tax return (Texas and Florida, for example), select that state as the resident state, although you do not need to add it on the “Profile” tab.

You might next need to head to the state’s “Part-Yr./ Nonres Info” subsection in the “State & Local” section. Usually, you will not need to enter much in this subsection, but some states require information, such as “days spent in the state as a non-resident.” Be careful, however, as some of the input on this screen is an override [O] for the wage allocation between the states. We will cover the non-override input for the wage allocation in more detail toward the end of this article.

Part-Year Resident of a State
Part-year residents are residents of a state for only part of the year, and are often part-year residents of two or more states. The definition of a part-year resident depends on the state, so you may need to ensure your client meets a specific state’s criteria. However, using the following input, ProConnect Tax Online will automatically determine which type of returns are appropriate for your client.

We will begin very similar to how the non-resident return was started above. Add all of the states you need, including all part-year resident and non-resident states. The only difference is in the “Resident Status” subsection. As before, select which state the taxpayer was a resident of at the end of the tax year. This time, though, uncheck the box labeled “Full Year Resident?” Ensure the “Multi-State Return?” box is checked. By doing this, you have told ProConnect Tax Online that you need to file returns in all of these states and that the client lived in one particular state at the end of the year, but did not live in that state the entire year.

ProConnect Tax Online just needs a bit more information to categorize these state returns. Make the input in the “Part-Yr./ Nonres Info” subsection in the “State & Local” section. States where the taxpayer was a part-year resident will require the beginning or end dates of residency, and sometimes both. Just as in the prior scenario, some states may require total number of days as a non-resident. Make sure you enter this information for each state.

Sourcing Income
You can also easily calculate the appropriate credits on a multi-state return. To correctly calculate these credits, here’s how to enter and source income and tax withholding within ProConnect Tax Online.

The process is straightforward. Clicking on an input field that allows multi-state input will bring up a small box with a “+” sign. Clicking on that box will open the multi-state input box. Here, simply enter the amount for each state, and within the “State” column, choose the state for that specific dollar amount.

In some situations, you may find that the total of all states does not equal the federal amount. To correctly input the return, you’ll need to use the “Source” column in the “Supporting Detail” box. By selecting “State” in this column, the amount entered will flow only to the state and will not be included in federal calculations. That amount will also not flow to any state other than the one selected!

In the example below, $45,000 with “NY” as the state will flow to the federal and New York return. $5,000 with “NJ” as the state and “State” in the Source Column will flow ONLY to the New Jersey return.

Tip: Remember that states tend to handle credits for taxes paid to other states differently. Some states even have reciprocal agreements that can exempt residents from liability or withholding in another state.

We have briefly covered how to set up multi-state returns in ProConnect Tax Online, as well as how to input amounts attributed to a specific state. Now, with ProConnect Tax Online at your side, you will be able to confidently and quickly prepare returns for clients who earn income in numerous states!