working in Illinois, now living in Indiana - state tax withholding

snipped-for-privacy@gmail.com wrote:

You're right, Illinois and Indiana no longer have a reciprocal agreement, so you are subject to Illinois tax on your Illinois earnings even after you moved to Indiana. You are a part-year resident of Illinois, and a part-year resident of Indiana, and will file part-year resident returns with both states for 2006. Assuming you moved to IN on Sept. 1, you'll owe tax to Illinois on all of your income, from all sources, from January through August, and also on your Illinois earnings from September on. You'll owe tax to Indiana on all of your income, from all sources, from September on. Indiana will give you credit for the tax you pay to Illinois on your Sept-Dec earnings (i.e., your Illinois source income after you became an IN resident), limited to the proportion of your Indiana tax liability that relates to that income. It sounds to me as though your W-2 is wrong. Surely the employer withheld and paid over to Illinois the tax on all of your earnings up to the time you moved to Indiana. If it didn't have an Indiana employer number until January 2007, it probably paid all of your withholding to Illinois and none to Indiana. You should question the W-2. I bet Illinois got all of the payments, and there is no mechanism for moving withholding credits from one state to another. Since Illinois is going to tax all of your earnings, you want the withholding credit in Illinois, not in Indiana. Katie in San Diego

Thanks a lot Katie! You are absolutely correct and that was my thinking too. I have since asked for and received a new W-2 which shows all my withholdings to IL. Thank you.

Thanks for the feedback!

Katie

I have a VERY similar question to this I was hoping I could get some advice on! I moved from IL to AZ in April of 2006, but my employer was not able to obtain a state employer ID number until November

2006. Consequently my W2s show that I made 5/6 of my wages in Illinois and 1/6 of my wages in Arizona even though I established residence in Arizona back in April. Do I need to find a way to have my W2s corrected so that my wages in Arizona are reflective of when I actually moved out here, or are the W2s okay as they stand? I'm still working for the same company, the only difference is that I live in a new state. Right now my earnings look a bit strange because 5/6 of my wages were made in 3-4 months while 1/6 of my wages were made in 9 months. If I need to obtain a corrected W2 what is the normal procedure for doing that? Does my employer need to contact the payroll company to get the state earnings reallocated appropriately? I know that the credits will not change... I assume my taxes would look like I would get back a sizeable refund from Illinois and that I would owe Arizona a fair bit if we were to work towards getting the W2s changed and I'd like to keep things simple by just reporting the W2s as they are today. Are there any other special considerations I may have overlooked? What do you all think?

Thanks in advance for any advice you can offer.

The W-2's are fine, but you need to ignore them when allocating your income between IL and AZ. You'll probably be getting a refund from IL and will probably owe IL. Your employer could have adjusted the withholding in 2006, but it's too late now.

-- Phil Marti Clarksburg, MD

Echoing Phil ... You cannot use the numbers from the W-2s to allocate your income between IL and AZ. Assuming your compensation rate did not change over the year, you would allocate by the days worked in each state. If there were fluctuations in your compensation, you should make an actual cutoff, if you have the pay stubs or can get the detail from your employer. You do not need corrected W-2s, but it may be a good idea to attach a statement to the Illinois return explaining the difference between the Illinois wages shown on the W-2 and the amount reported to Illinois. The DOR may still ask you about it (those statements generally aren't read when the return is processed) but you will have the satisfaction of telling them, "Read the attached statement, dummy!" . Unfortunately, you are overwithheld for Illinois and owe tax to Arizona. As a first-year filer in Arizona, it is likely you will not be subject to any penalty for underpayment of estimated taxes, since your Arizona tax liability for 2005 presumably was zero. Katie in San Diego