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Another Multi-State Dilemma

My employer deducted taxes for two states last year. Assuming my salary was $1,000,000 (hypothetically, from a single employer), the W2 shows NY income to be $1,000,000 and Hawaii income to be $700,000. Obviously the sum of the parts exceeds the whole. Being a law abiding citizen, I had witholding done for two states. Probably a big mistake doing it so early, but better to overpay than underpay. The distribution of pay works out more closely to $666,000 (NY) and $334,000 (HI). NY accepts my claim of $666,000 in taxable income, while Hawaii insists on $700,000. I became a resident of HI last year. Here are my questions:

  1. Do I ask my employer to issue a W-2C at this late date?

  1. Do I sign an affidavit stating that the W-2 wrongly allocates income, and hopefully get Hawaii to accept it?

  2. Get a tax attorney to fight this?

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Reply to
acne_is_incurable
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From the facts given it is impossible to tell whether the W-2 is correct or not. For example, if you did some work for your employer in Hawaii while you were still a NY resident, the Hawaii W-2 could be right. Katie in San Diego

Reply to
Katie

The key is your state of residency.

Let's say you were a resident of NY the entire year, but you traveled to HI and did $700K worth of your work for your employer on site in a Hawaii location. Because you are a legal resident of NY, you owe tax to NY on the whole million dollars. Because you did $700K of the work in HI you owe tax to HI on $700K. BUT, the saving grace is that you can take a CREDIT against your NY tax for what you paid to HI. So, in essence, it doesn't much matter how your income is split across the two states. NY will tax all of it and give you a credit for whatever you had to pay to Hawaii. (This is something of an oversimplification and if Hawaii's tax rates are significantly higher than NY's, which I would tend to doubt, you might not get a full dollar for dollar credit, but hopefully it should work out pretty well in terms of avoiding double taxation.) Now, on the other hand, if you CHANGED your state of legal residence midway through the year, all bets are off on figuring this all out. Multistate returns are tricky to do right--for the amount of money you're talking about here, you really should have a professional do it!

Reply to
mathcircle

Reply to
San Diego CPA

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