This situation often happens when taxpayerslive and work in different states.
Example: Alex is a New Jersey resident who earns their entire $50,000 annual income in New York. They receive two W-2 forms from their employer:
- The first W-2 has NY, 50,000, and 3,000 in boxes 15, 16, and 17. Alex's employer has allocated $50,000 to New York and has withheld $3,000 in New York income tax.
- The second W-2 has NJ, 50,000, and 0 in boxes 15, 16, and 17. Alex's employer has allocated $50,000 to New Jersey, but didn't withhold any New Jersey income tax.
Alex's salary is taxable in New York, where they earned it, and New Jersey, where they live. To avoid being double taxed on the same income, they're allowed to take a credit for taxes paid to New York on their New Jersey return.
Because New York and New Jersey don't have a reciprocal agreement, Alex will have to file two returns: a New York nonresident return and a New Jersey resident return. Alex prepares a New York return first to ensure that TurboTax applies the proper credit to their New Jersey return.
Alex's New York Nonresident Return
Because Alex's entire $50,000 salary was earned in New York, they don't need to make any changes on this screen. (The only reason they would need to change it is if their employer made an errorinbox 16 ofhis W-2 form.)
Note: If the circ*mstances were different than Alex’s situation and the wages did need to be adjusted (for example, not all of the $50,000 was actually earned in NY), Alex could select Edit.
Alex finishes their return. Their NewYork tax liability is $2,516 and they get a $484 refund ($2,516 + $484 = $3,000 withheld).
Alex's New Jersey Resident Return
Now Alex is ready to prepare their New Jersey return. Alex will be asked to confirm the taxable state wages from their employer. Alex should check the box by “Remove These Wages” for NY, as that is duplicating the same income already reported on the NJ line. When Alex gets to the Summary of Taxes Paid to Other Jurisdictions screen, they see that TurboTax has calculated a $1,216 credit for taxes paid to New York using info from their New York return.
They don't get the full $2,516 credit, because the credit can't exceed their New Jersey tax liability of $1,216. The two figures cancel each other out and they owe no additional tax to New Jersey.
Your return may look a little different than the New York/New Jersey examples, but the underlying principle is the same. TurboTax adds all W-2 box 16 amounts together, resulting in what appears to be double income on one or both state returns, but actually isn't.
All you need to do is review your return to make sure the allocation screens show the correct amount. The income allocation for a given state is the amount of income that was earned in that state (also referred to as "state source income").
Important: Don't confuse state source income with the state that the employer's corporate offices are located. For example, income that's earned in New York while working for a company headquartered in Delaware is sourced (which means taxable) in New York, not Delaware.
