Whom do I pay, North Carolina or Maryland?

You will have to file an NC state tax return to get back the withholding. The forms are available online.

In theory you file a return with NC showing no NC source income. Then they should refund the withholding. Unfortunately it seems to be hit or miss these days. They have told me several times that if the 1099-R, W-2, etc shows NC earnings then it is NC earnings and nothing short of a corrected form will satisfy them. So far the amounts have been relatively minor and my clients have not wanted to pay my fee to appeal this up the ladder. The NC Department of Revenue used to be very reasonable and I still find the auditors are, but the processing people often only see black and white. You should include the income on your MD return but not the withholding.

Thanks for all the advice. Here's what I decided to do. I am going to file a nonresident NC return on the hope that they will refund the withholding. I am going to file an extension for my MD return. If NC goes against me and says I owe them, I'll count that as a credit on my MD return. If, NC plays ball, I'll count the IRA distribution as MD income.

It's MD income regardless of what NC does. At issue is whether you'll have a credit for taxes paid to other states on your MD return.

-- Phil Marti Clarksburg, MD