Cathy wrote:
- quote -

Establish which state was the state of residence at the time of payment
(residence can be statutory, domiciliary, or both). For the income
earned while a resident of any given state, it's probably all taxable by
that state. For income earned while a non-resident, only source income
from the non-resident state will normally be taxable by that state. If
the same income is taxed by two different states, often there will be a
credit or offset to prevent double-taxation.

-Mark Bole

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Cathy wrote:
- quote -

Whatever you do, don't try to file electronically with Illinois. Do it
the "old fashioned way", so you can attach explanation with the return
to explain why the 21000 is not IL income. You'll have to enter the
correct figures into your software of course. but this is one time
that paper trumps.

ChEAr$,
Harlan Lunsford, EA n LA

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On Mar 27, 10:51*am, Cathy <counte...[at]eaglecom.net> wrote:
- quote -

Same thing happens in NY. NY requires that the NY state amount be
equal to the federal amount. When you do a PR/NR form, you can show
actual source income.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Cathy wrote:
- quote -

Report what actually happened and ask for a revised W-2 (probably won't
get it given the saga, but certainly won't if don't ask).

--

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Was wondering if anyone has run into this situation before and if so,
how it was handled.

Client received a W-2 that shows $25,431.50 wages in box 1 of W-2.
There is income shown in boxes 16 for two states - Kansas and Illinois -
and also withholding shown for both of these states in boxes 17.

Illinois wages box 16 = 25,431.50 (same as box 1) and withholding of
$762.95 in box 17.

Kansas wages in box 16 = 21,432.00 and withholding of $578.69 in box 17.

The client insists that he earned only $25,431.50 from this employer.
He spent 5 days in Illinois for some training in 2008 (thus the reason
for Illinois being involved) and then returned to Kansas (his state of
residence before and after the days spent in IL) to work for this employer.

It appears to me, according to how the W-2 was prepared regarding the
STATES that he had earned the sum of $21,432 (KS) + $25,431.50 (IL) =
$46,863.50 in wages according to the STATE information.

So, I obtained a phone number from the client for the employer to try to
get a resolution. Now, I know that this information for the employee is
just based upon what payroll was told, but this is how the employer's
payroll person attempted to explain this situation:

Summarized: "Employee began his employment with us and was working and
living in Illinois when he was hired (Feb 2008). Then, in March 2008,
he continued to live in Illinois and started working in Kansas. Since
he was now working in Kansas, we began withholding in Kansas and ADP
looks at the 'worked in state' first for withholding, and if the 'lived
in state' (still IL according to them) has a higher tax than the worked
in state, it will withhold based upon that state."

I tried to explain to the payroll person that it was not possible to
earn the same wages in 2 different states, but, she thought I was trying
to explain tax law to her and she was not wanting to learn tax law! She
did confirm to me that the $21,432.00 did represent the actual wages
earned while working in Kansas and then, she did follow my logic to
agree that the wages earned in Illinois would have been $3,999.50
($25,431.50 - $21,432.00). She insists that he earned $25,431.50 in
total gross wages from them and that the W-2 is right. (FWIW - note the
employer uses ADP for their payroll .... and thus, the W-2's were
prepared by ADP)

My question is how do I properly report this information on the client's
tax returns? I am fearful that one of the two states (KS / IL) will not
agree with the client's returns no matter how I prepare them. My
thought is to report the $3,999.50 reported in IL (even though it
disagrees with their state wages) and then report the $21,432.00 in KS
and report the corresponding withholding. But, if Illinois matches IL
wages to the taxpayer SSN - he will have underreported his wages on his
IL return. Other option might be to tax the entire $25,431.50 in
Illinois (prob higher tax rate) and just IGNORE the Kansas wages of
$21,432.00 and show the KS withholding on the KS return (but, then if KS
attempts to match his wages, he will have underreported his income in
KS). Credit for taxes paid to other states is probably not going to
apply in this situation as the employee moved out of Kansas to Texas (no
state income tax) sometime after this job assignment was completed (and
frankly, that is the least of my issues here anyway!).

I have asked the client to obtain a check history from this employer in
case he is ever questioned by either IL or KS down the road.

Any words of wisdom from the group as to how to handle this situation
re: preparation of the 2008 State income tax returns?

Thanks

Cathy Herber
Ellsworth, KS

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >