All you need to know about Multiple State Tax filing

by Mounica Kota | Jul 11, 2020 | Multiple State Tax, Resident State Tax, State Tax Return, tax filing

All you need to know about Multiple State Tax filing

Multiple state tax filing As the pandemic COVID-19 continues to affect common people in the worst manner, many Americans who were residing in different states for work are gradually returning to their native states. People have now decided to return to their native States and work remotely. So, now you have quite a large number of tasks lined up for yourself.

You need to settle down, make yourself a part of the new community, and obtain a new driving license, register to vote in the new state, and many more. One more additional task is the filing of the tax return. Until now, you were filing only the Federal tax returns but now you would have other tax returns to file. These would include the need to file a tax return in the State you moved from to the State you have moved to.

Queries and confusions related to multiple state tax filing usually arise if you are earning income in different states during the same calendar year. These confusions can occur due to several reasons such as

If you are changing your residency in the mid of a calendar year to a new State.
If you are into a profession where your work makes you present in multiple states in a particular calendar year.
If you own investment property outside your home state.

Determination of State residency

For most the Americans, determination of resident state is quite simple. The complications and risk of being open for a State Audit might arise if your stay time is split between multiple states.

You will have to prove to the State about your residency by showing up things like where you had been living in most of the year, where you own property; your bank accounts are present in which State, where are you registered to vote, etc.

Determination of your State residency is the primary step in the calculation of your State tax as it will help in determining the State in which you would have to file a state tax return as a resident.

Non-resident State tax return

For those non-resident states where you have earned income, you will have to file a Non-resident state tax return. In this form, you will have to report only those incomes which were earned in the Non-resident states.

a. In case, you are the owner of an investment property in the Non-resident State then your tax return to be reported would be rental income minus the associated expenses.

b.If you are a consultant who is working in some project out of the resident state then the income to be reported would be the proportion of your salary earned while you are working on that project.

c.There are some states such as New Jersey and Pennsylvania which are into an agreement by which there is no obligation for the residents of the states to file a non-resident state tax return if they are earning in the non-resident state.

Resident State tax return

In case of your home state’s tax returns, you have to report all income that you have earned which even includes the income that has been earned in different states. This implies that all your income in that calendar year would be subject to resident state’s tax laws.

While you are completing your tax returns, you will have the opportunity to list down the taxes which you owe to pay to other states. This would be applied as a credit against the taxes which are owed to the resident state

and so,you are not in a bad state by making a part of your income outside your resident state.

Part-year resident State tax return

The part-year resident State tax return would be relevant for those Americans who have moved from one state to another in the middle of a calendar year. By this, you would have an opportunity to split your income between the two states and claim to be a resident of both the states.

For the calendar year in which you are moving from one state to another, you would file the Part-year resident State tax return. However, you do not have to worry about paying double of your State tax.

Mostly, states would tax only income earned within the state and not outside the state. When you know the exact income earned in each state, you can easily report the exact income for each state. This can be feasible if you had a savings account in your old state which you closed while moving and opened a new one in your new state.

Conclusion

Hence, filing of State tax returns is somewhat confusing and would take some more time. You must determine your state of residency carefully, understand your income allocation as you cannot take the numbers reported on your W-2, and review your state tax returns carefully.

Filed your 2019 Tax Returns with the IRS? Here’s all you need to know

by Mounica Kota | May 15, 2020 | CARES, coronavirus, COVID - 19, IRS, tax return

Filed your 2019 Tax Returns with the IRS? Here’s all you need to know

Under the provisions of the CARES Act, the Americans have been provided with Stimulus payment for certain relief from the economic distress caused due to the pandemic COVID-19. The amount you would receive as Stimulus payment or as the Economic Impact Payment (EIP) is being calculated by the IRS based on the information provided while filing tax returns for the year 2019.

However, there can be instances in which even if the tax returns for 2019 have been filed but the amount received as Economic Impact Payment (EIP) is quite different from the amount expected.

Economic Impact Payment (EIP) is quite different from the amount expected

a.If the 2019 tax returns have not been filed or the processing of the 2019 tax returns have not been completed by the IRS

The calculation for the amount you would receive as Economic Impact Payment is done based on their data of 2019. In case you have not filed his tax returns for the year 2019, then in such a case, the IRS would consider the information of the tax returns for the year 2018.

Moreover, suppose you have already filed your tax returns for the year 2019 but the returns have not been processed by the IRS. In such a case, the IRS would use your information of the year 2018 and calculate your EIP. This might lead to receipt of a different amount as the various life events which might have occurred in 2019 would not have been included during the calculation.

b.If the qualifying criteria for the additional $500 are not clear

You would receive an additional $500 if you have claimed your children for the Child Tax Credit during filing your tax returns. To claim a child for the Child Tax Credit, you must be related to the child, lived with him for more than half of a year, and must be bearing half of his expenses. The child must be below the age of 17 years at the end of the year for which you have filed the tax returns.

You can also claim your foster/adopted children, your siblings, your nieces, or nephews if they satisfy the qualifying criteria. If the claimed child has an individual taxpayer identification number (ITIN), then he would not be considered for an additional payment of $500 in the EIP. You would receive an additional $500 only if the claimed dependent has a valid Social Security Number (SSN) or an Adoption Taxpayer Identification Number (ATIN).

c.If you have claimed a dependent who is a college student

According to the CARES Act, if you have claimed your child or dependent who is a college student then you would not be eligible for receiving the additional $500. Suppose, you have claimed your dependent who is a college student in your 2019 federal income tax returns. However, your dependent is more than 17 years of age and would not be eligible for getting you the additional $500 in the EIP.

d.If claimed dependents are above the age of 17 years or are your parents/relatives

In case during your tax return filing, you have claimed your parent or any other relative who is of the age 17 years or older, then that dependent will not be eligible to receive a $1,200 Stimulus payment. Also, you will not be eligible to receive an additional $500 in your EIP because your parent or other relative is not satisfying the qualifying criteria i.e. being above the age of 17 years.

However, if you are not claiming your parent or relative as a dependent and neither anyone else is doing so for their tax return of 2020, then your parent or relative would be eligible to obtain the $1200 stimulus payment on the tax return filed for 2020 next year.

e.If past-due support to a child is deducted from the EIP

Your past-due child support can be a reason for the offset of your EIP. In such a case, if an offset occurs you would receive a notice from the Bureau of the Fiscal Service. In case you are married and have filed your tax returns jointly, along with filing an injured spouse claim during your tax returns of 2019 or 2018(in case the tax returns for 2019 have not been filed) the payment would be equally divided and sent to you and your spouse. Your EIP or your spouse’s EIP would be offset depending on who owes the past-due child support.

If you received an incorrect EIP

You need to be very clear about the eligibility criteria, know the eligibility requirements of your family, and ensure that you meet the qualifying criteria.
You might have received a lesser amount of EIP than that you expected. However, you might be eligible to receive an extra amount of EIP next year while filing your tax returns for 2020.
If you are eligible, you can claim additional credits on your tax returns for the year 2020 while filing for the tax returns.
You must keep the letter you receive by mail after obtaining your EIP as records for future use.

References

https://www.irs.gov/newsroom/why-the-economic-impact-payment-amount-could-be-different-than-anticipated