This article will help explain the steps to allocate multi-state W-2 double and separate taxed income, along with examples.
Double-taxed income
Example
John Doe is a part-year resident of California. During the year he moved to Oregon but continued to commute to his job in California. He received one W-2 from his employer which reflected the following information:
- Federal wages: $25,000 ($5,000 of which was earned as an Oregon resident)
- California withholding: $1,000
- Oregon withholding: $200
Because the wages were from a California source, John must report the full $25,000 to California. Only the $5,000 John earned while he was an Oregon resident is taxable to Oregon. This is an example of double-taxed income.
Steps
- Go to Screen 10, Wages, Salaries, Tips.
- Press Ctrl+E while in the field (1) Wages, Tips, Other Compensation.
- Enter 25,000 in the Amount column on the first line.
- Select CA in the State column.
- Enter 5,000 in the Amount column on the second line.
- Select OR in the State column.
- Select S in the Src column on the second line.
- The S is needed because the $5,000 should only be allocated to Oregon (S = State Only; N = Federal Only).
Results
The federal and California returns will reflect total wages of $25,000. The Oregon nonresident return will reflect resident wages of $5,000 from Oregon sources. The federal Schedule A will reflect the combined state withholding of $1,200. If you had omitted the S entry from the Oregon wage amount, the federal and California returns would erroneously reflect total wages of $30,000.
Separately allocable income
Example
Assume the same facts as in example 1, except John Doe was transferred to his company's office in Oregon during the year. His W-2 showed the following information:
- Federal wages - $25,000 ($20,000 earned in California, $5,000 earned in Oregon)
- California withholding - $1,000
- Oregon withholding - $200
As a part-year resident of California, John must report to California only the $20,000 he earned in California. As a part-year resident of Oregon he must report to Oregon only the $5,000 earned in Oregon This is an example of separately allocable income.
Steps
- Go to Screen 10, Wages, Salaries, Tips.
- Press Ctrl+E while in the field (1) Wages, Tips, Other Compensation.
- Enter 20,000 in the Amount column on the first line.
- Select CA in the State column.
- Enter 5,000 in the Amount column on the second line.
- Select OR in the State column.
Results
The federal return will reflect total wages of $25,000. The California part-year return will reflect wages from all sources of $25,000 and wages from California sources of $20,000. The Oregon part-year return will reflect wages from all sources of $25,000 and wages from Oregon sources of $5,000. The federal Schedule A will still show $1,200 in the "State Taxes Paid" field.
Some employers will indicate the other states wages (Oregon in these examples) in Box 16, State Wages, of Form W-2. Don't enter those amounts in the (16) State wages, if different field. You must enter that amount in the federal wages field using the appropriate state identifier.
See Allocating W-2 Wages and Withholdings for Multi-State Return for more information and tutorial.
