The feeling of being hit with a tax bill from two different states is right up there with a nightmare. We’ll help you avoid cases of double taxation in the following ways:
Allocation between states:
If you moved during the year, there is an option to allocate your income to each state to get you a clean cut-off of where your incomes should go. It’s a delicate balancing act, but if your W2 (or 1099) shows just one of the states or the wrong state, then we might need to resort to a combination of other alternatives like credit for tax remitted to other states and the state wage allocation method.
— Credit for tax paid to other states
If your reported income (W2) has already been taxed by another state, most of the states issue you some relief through some form of ‘credit’ for taxes you may have remitted to other states.
Only the most professional and sophisticated tax softwares have these features. So, if you’re in need of this, kindly reach out to us.
One thing you must consider is this: Once it’s clear that you earned income in SC (your source state) before driving back to your other place of residence in CA(your residence state), your taxes would be paid on your W2 to the income source state (SC).
However, there will be a credit on your CA return for the tax remitted to SC
Taking this route means you don’t get to pay tax twice (double taxation) to both states. Though there are a few states where this remedy doesn’t apply, if you’ve moved within the year, the residence state issuing the credit compels you to file a full-year return in the likely event that you will be requesting a credit.
Hence, we’re always super-creative with how the return is filed while also keeping an eye out for legal compliance boxes of state laws that must be ticked.
— State reciprocity agreements
Some states have reciprocity agreements like DC and VA, where you’re only required to file in the resident state. A few other examples of states having similar agreements with neighboring states are Indiana, Maryland, Arizona, and Illinois.
— Reverse Credit States
CA is a shiny example of states that issue reverse credits. So, residents of CA who work in OR would only remit the tax to their resident state instead of paying to the income source state.
If you’re in need of any of these services, let us know and we’ll help you with actionable insights and valuable advice.