Because of the length of the last conversation on this subject and thinking I have a solution consistent with some of your feedback, I thought I would repost the situation and my plan:
My daughter continued to live with my wife and me in Maryland after graduating college in May 2019, started working for a company in Washington, DC in June 2019, through December 31, 2019.
On January 1, 2020, my daughter signed a lease and moved into an apartment in Washington, DC, and updated her withholding to withhold DC income tax.
In mid-March, due to COVID-19, her company went to mandatory telework. As she obtained the apartment only to significantly ease her commute, and due to perceived higher risk of COVID in the city, she returned to our home in Maryland at that time. Once she left the apartment around March 15, she did not desire to return to live there unless the company would have mandated a return to the office to work, which has not happened.
She continues to pay rent and utilities on her DC apartment even though she has not spent one night there since mid-March. She continues to have DC income tax withheld.
Her company just informed employees that they are going to encourage telework through at least the remainder of calendar year 2020. As a result, she is signing a new agreement with her apartment management company, her former roommate, and a new person who will sign a new lease and take over for her in the apartment. This frees her from the lease effective August 1.
DC will consider her a "statutory resident" having "maintained an abode" (the apartment lease from January 1 through July 31) for more than 183 days. Accordingly they will hold her liable for DC income tax on her entire year income.
MD will consider her a "part-time resident" from August 1 - December 31, 5 months.
She will first complete a MD return. It will include her wage income only from her 8/15 paycheck through her 12/31 paycheck. Her MD AGI will be based on wages earned from August through December, not her Federal AGI, plus the portion of her Federal AGI for unearned income in Maryland, including her MD tax refund from her 2019 return. She will then subtract the MD tax refund under Subtractions. She will subtract 5/12 of the standard deduction and 5/12 of her exemption, then the MD and local tax will be computed.
She will then complete a DC return. It will be based on her entire year wages, plus unearned income while the lease was in force, including taxable dividends. It will not include her MD tax refund as this is MD income. Tax will then be computed on this net amount less DC deduction. She will attach her MD return, show the amount owed, and indicate this as a tax credit for taxes paid to MD. She will be liable to DC for the DC total tax less the tax owed to MD.
Based on this, she has already had withheld to date to DC more than the tax liability to DC and will be due a refund when she files in February 2021. She will be updating her withholding from DC to Maryland at a level consistent with the amount of tax due to MD at the end of the year.
- posted 4 weeks ago