Your Life

Your Life

Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.

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Pioneer
Posts: 1
Registered: ‎02-19-2016

Previous Employer Taxed wrong State (or not?)

Hi Everyone,

 

I was previously employed in North Carolina, but was recently layed-off(last day 9/16). Fortunately i immediately found and started work in California on 9/28. Under the terms of separation from NC Employer, i would be given separation pay. Separation pay was issued on 9/30, but because i listed my new California address as a forwarding address starting on 9/15, the pay was taxed in CA, rather than NC. This was the explanation i was given from my prior HR, and that I should work with my accountant to report the separation income under NC instead of CA.. My California tax bracket is at 9.3& vs NC flat rate of 5.75%. Assume i was taxed $930 dollars in CA from my separation pay, i believe this is both money taxed incorrectly, and several hundred dollars extra paid.

 

I was under the impression that I should pay taxes only to the state for which the work was performed, and while the previous HR/Payroll sounds like while they agree with me, they do not sound like they wish to be bothered to reissue a W2. I have done some online searching, and most other people typically as taxed twice by both states. But in my case, I was taxed only under CA, simply for the reason of residing there at the time.

 

I am using the Deluxe version of the software, and I have nearly completed my the NC(part-time) portion of the return, and have yet to start(pay $39.99) the California return (for the new job). I do not see any special circumstance portion of the software that can address this issue other than the corrected W2. My questions are the following:

 

  1. Was I corrected taxed by my NC employer to CA for separation pay?
  2. How do I report NC Job's separation pay taxed under CA as NC state income instead?
  3. Do I need a corrected W2 to do this?
  4. Can HRBlock Deluxe correctly report this, or do I need to hire an accountant?

 

 

Thank you in advance for any help or suggestions provided.

 

Stephen.

 

Stephen.

 

 

Tax Pro
Posts: 5,070
Registered: ‎02-23-2016

Re: Previous Employer Taxed wrong State (or not?)

[ Edited ]

Hi stakuo,

 

Welcome to the community.

 

For tax years prior to 2014 the first $35,000 of severance pay was not taxable in North Carolina.  However, since your severance pay was paid out in 2015 it is fully taxable and subject to North Carolina withholding.  You will need a corrected Form W-2 from your employer showing North Carolina wages before you can correctly complete your tax return.

 

The way it works when you move from one state to another during the year is that you must complete 2 part-year state tax returns.  During the time you live in a given state, that state taxes you on all income from whatever source derived.  So because you lived in California you are subject to California tax on the severance pay.  However, California will give you a credit for any taxes paid to North Carolina while you were not a resident of North Carolina.

 

Hope this helps you out & please ask if you have any other questions.

 

Highlighted
Pioneer
Posts: 1
Registered: ‎04-15-2017

Re: Previous Employer Taxed wrong State (or not?)

My permanent residence is Jacksonville FL, but I was stationed at the Pentagon and I was living in Alexandria VA in 2015 and then deployed to Japan, my Wife worked for the State Dept. in DC, but put her address down as VA, and forget to change it when we moved to Japan. She was taxed by VA. What can I do to recover taxes paid to Va. If I file VA Taxes, they will charge tax me based on my whole income even though I was only a temporary resident and did not even live there in 2016.