• Income Taxed by Two States

    From Stuart O. Bronstein@21:1/5 to All on Thu Oct 14 10:56:03 2021
    When someone has income that can be taxed by two countries, there are
    tax treaties that essentially prevent the person from having to pay tax
    on the same income twice.

    But what about when income can be taxed by two states? Are there any
    firm rules? Or is it up to the states to deal with in their own ways?

    Thanks.


    --
    Stu
    http://DownToEarthLawyer.com

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  • From Adam H. Kerman@21:1/5 to Stuart O. Bronstein on Thu Oct 14 12:31:37 2021
    Stuart O. Bronstein <spamtrap@lexregia.com> wrote:

    When someone has income that can be taxed by two countries, there are
    tax treaties that essentially prevent the person from having to pay tax
    on the same income twice.

    You've got that handwaiving term "essentially" in there. The United
    States government asserts jurisdiction over its citizens regardless of
    where in the world they live and requires that tax returns be filed
    annually. Generally, worldwide income is subject to tax.

    Tax treaties generally handle the issue of dual taxation NOT by limiting reporting of foreign-sourced income but with tax credits.

    But what about when income can be taxed by two states? Are there any
    firm rules? Or is it up to the states to deal with in their own ways?

    You have a variety of states applying their own revenue laws. My state
    is like the federal government in that world-wide income is disclosed (calclations are based on federal AGI) and credits applied for foreign
    taxes paid, "foreign" in this sense meaning to other states or foreign countries. We also have additions and subtractions to determine basic
    income under state revenue law before the tax calculation is made.

    There is the further complication of full-year versus part-year
    residency. In some states, that's apportioned, and the method of
    apportionment may be different on income versus exemptions and
    deductions. In other states, there are various methods of pro-rating.

    There is yet another complication in which neighboring states have
    agreed NOT to tax income from a job if the worker isn't resident, but
    it's still reportable.

    This resulted in a bizarre complication I once ran into in which a
    taxpayer was adversely affected by such an arrangement between two
    neighoring states: His job was in State A. He was a part-year resident
    of State B. That meant he had file an income tax return as a part-year
    resident of State B. You guessed where I'm going with this: He moved,
    and became a part-year resident of State A. Even though all his income
    from work was from the one state, he had to report it to State A as a
    part-year resident of State B, and then report it to State A as a
    part-year resident of State A.

    My state doesn't tax pensions, but other states assert nexus over
    pensions as deferred income from the state in which it was earned.

    You'd need there to be a model state revenue act that every state would
    adopt to get common income definitions of what's subject to reporting
    and what's subject to taxation.

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  • From Maria Ku@21:1/5 to All on Thu Oct 14 15:53:46 2021
    I want to add to the above. It is common that one's resident state would give one a tax credit for any non-resident tax paid to another state. In many cases, this is how any double-taxation is mitigated. It's not always so, but often is. On the other
    hand, if an individual is considered a resident of both states, this "other state tax credit" will not be available to them, as it is normally a credit for any "non-resident" tax paid. And then, there are grey areas.
    Last year, there were cases discussed where NY taxpayers moved to another state but continued working remotely from their new home (say, in CA) for their NY employers. NY treated their earnings as NY "resident" earnings if they worked from home (as
    opposed to that company's CA office), and CA treated their earnings as CA resident earnings. No "other state credit" was available to them in this situation. There was lots of discussion of this unfortunate outcome during last tax season.

    Maria U. Ku, CPA
    Oakland, CA

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  • From Alan@21:1/5 to Adam H. Kerman on Thu Oct 14 18:49:52 2021
    On 10/14/21 9:31 AM, Adam H. Kerman wrote:

    My state doesn't tax pensions, but other states assert nexus over
    pensions as deferred income from the state in which it was earned.


    I may have accidentally sent my reply to the individual rather than the
    group:

    See 4 U.S. Code ยง 114 - Limitation on State income taxation of certain
    pension income
    https://www.law.cornell.edu/uscode/text/4/114

    (a)No State may impose an income tax on any retirement income of an
    individual who is not a resident or domiciliary of such State (as
    determined under the laws of such State).

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