What to do about a small out of state W2?

If the $1,100 is his only Wisconsin income, he is not required to file a Wisconsin tax return. A nonresident of Wisconsin is not required to file if his Wisconsin gross income is less than $2,000.

His investment income is all PA income.

Even though he is not required to file, he might want to file a Wisconsin nonresident return to get his $15 back.

Bob Sandler

I did his PA return. The software says that if he owed and paid WI tax, he can get a credit for it on PA return. He paid the $15, but maybe didn't owe it. Unless I put in that he owed $15, it won't give credit for the $15 paid.

I don't want to defraud PA, especially not for $15. Can I put in that he owed $15, or would that be improper without filing a WI return and actually determining that he owed $15?

Thanks much.

He doesn't owe WI $15. He doesn't owe any WI tax at all. His WI tax is zero.

You can't put the $15 on the PA return as tax paid to WI because he does not have to pay any tax to WI. He can't get credit from PA for the $15.

He can get his $15 back from WI, not from PA. He gets it by filing a WI nonresident return. The WI nonresident return will not determine that he owes $15. It will determine that he owes zero, and is entitled to get the $15 back.

Bob Sandler

You have to file a WI tax return and owe WI income tax to get a credit from PA. PA Schedule G requires that you have paid income tax to another state and you must file a copy of the other state's tax return with the PA tax return.

I went through the WI non-resident form. It takes his WI income AND a small percentage of his non-WI income and concludes he owes $63, or $48 plus the deducted $15.

So, two questions:

1) Is his WI income what he actually earned in WI, or is it the income figure off the WI income tax return? 2) If he files a WI return and pays $48, does he then get a $63 credit off his PA return?

This is getting to be a real headache. If the answer to #1 is just what is earned in WI, then we will just forget the whole thing.

I really appreciate the help.

You've done something wrong. None of the income earned outside of WI is taxable to WI.

Ira Smilovitz, EA

The form determines his Federal Income and deducts the state deduction, giving $65,000 and the Wisconsin Income $1,175; and gets a ration of 0.017. It then determines the Wisconsin income tax on the entire $65,000 is $3,732. Multiplied by the 0.017, it calculates the non-resident tax as $63.

If your son is not your dependent, then he does not owe any WI tax. If he is your dependent (hard to imagine if his income is $65K) then his WI standard deduction and personal exemption are limited and your calculations may be correct. As has been stated earlier, if his WI gross income is less than $2000, there are special rules. See "who must file" in the WI 1NPR instructions.

Ira Smilovitz, EA

He is not a dependent. Admittedly this might be petty, but... They deducted $15 from his pay. His only chance to get it back is to file a WI return. If he does, paying $48 to WI, does he get a $63 deduction on his PA return?

Since he doesn't have to file, this can't be worth it, but still...

Pennsylvania will limit his credit to the amount of tax Pennsylvania would collect on that amount of income. The Pennsylvania flat tax rate is 3.07%. 3.07% of $1175 (your son's Wisconsin income) is $36 which should be the most he can receive as a credit on his PA return. See

for the PA form and instructions. Steven Geib, VITA volunteer

Frustrated wrote in news: snipped-for-privacy@googlegroups.com:

Not a tax pro, but I think what you are seeing is what was called the "Nebraska Rule" at one time, I guess Nebraska was the first state to do this. Now I think most states use this method, unless there is a special interstate arrangement.

The concept is that you figure your entire income based on federal AGI, then apply certain state-unique "additions and subractions to income" to come up with a new total income based on the state's laws. That forms the basis for determining the tax due (so, to the extent the state's tax is progressive, you are probably subject to a higher rate).

Then you compute the ratio of in-state income to the total income and apply that ratio to the tax to determine the actual tax. Of course the amount of witholding is a credit against this tax.

I assume for TP's state of residency, he includes the Wis non-res return and claims a credit against PA tax for the tax paid to Wis. Whether the WI tax is paid via witholding, estimated payments, or with return shouldn't matter. I don't know if the PA credit is refundable, but if the total PA liability is >$63, then doing the WI return and getting the PA credit would "save" the $15 already paid to WI.

All I can say, is if you think WI is bad, try doing a CA non-res 504 return where so many things like depreciation don't follow federal rules.

scott s. ..

Okay, reading everything; he doesn't have to file because his WI wages are only $1175. Since he would have to pay $48 to file and could then only recover $38 on his PA return, we will just forget it. Thanks all.

No, you're still doing it wrong. Look at the instructions carefully (page 4). If his WI source incomoe is less than $2000, you enter $0 on line 39. He gets his full $15 back.

Ira Smilovitz, EA Glenwood Tax Services

I see that in the instructions. Thank you for pointing it out. H&R Block software isn't doing it that way. I will have to try to figure that out.

I understand doing things on principle, but I think in this case it is not worth the $15. I've learned over the years not to get obsessed with making sure my taxes are accurate to the dollar. Otherwise it will be a very frustrating experience as you have sees.. I tend to probably overpay them. Once I file them I never think about them.. I read somewhere that most taxpayers overpay their taxes... I think of taxes as a minimum donation to support the society we live in.. With this mindset, I no longer get frustrated doing them...

Which is probably why tax prep companies like H&R Block can truthfully claim that they generally increase people's refunds. But I'll bet the median increase is pretty small.

The one that usually gets me is probably Foreign Tax. You can either do this as a deduction or credit, but the form for the credit takes more work (I think you need to itemize all the different countries), so I usually go with the deduction. The difference probably amounts to about

1% of my total tax, so I don't sweat it. I consider the leisure time I gain to be worth it.

I don't think so. The statement I get from Vanguard doesn't show an individual; country, just the total foreign tax.

Maybe there's a de minimis exception. My foreign tax comes from the total foreign stock fund, VXUS, so the amount would be split among many countries.

There is an exception to the normal rules that allows you do have a simpler claim for the foreign tax credit. Those rules are:

Exemption from foreign tax credit limit.

You will not be subject to this limit and will be able to claim the credit without using Form 1116 if the following requirements are met.

• Your only foreign source gross income for the tax year is passive category income. Passive category income is defined later under Separate Limit Income. However, for purposes of this rule, high-taxed income and export financing interest are also passive category income.

• Your qualified foreign taxes for the tax year are not more than 0 (0 if married filing a joint return).

• All of your gross foreign income and the foreign taxes are reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT).

• You elect this procedure for the tax year.

(Source:

This also feeds into instructions to use "Various" as the foreign country name when claiming the credit. So whether you can use the shortcut mainly depends on whether all of the tax comes from 1099-* forms and is not too high.

Effective 2007, mutual funds can be claimed on form 1116 without separating by country.

-- Arthur Rubin, Brea, CA