WV tax help (with a possible assist from VA folks) needed

[FEDUKE404]

The daughter of a friend/non-client (long-time VA resident) has graduated from college and will be working in WV for the latter part of 2011. A "tax information friend" has provided them ideas referencing the following:

Apparently WV has an unusual option (see Form IT-140NRS) where a person who lives/works in WV for less than 183 days during the calendar year and who has only wage income from WV can file that form for a full refund of ALL WV income taxes withheld from the wages.

Rest assured I have prepared plenty of part-year resident tax returns, and so far as I recall all have involved some kind of ratio of "state" incomes to federal income, with frequently some adjustments then made to state personal exemption and/or standard deduction amounts.

But I have never encountered anything like the WV form! (Aside: Have I just lead a sheltered tax life??)

Is this just a selection the client can make (filing only the single WV form plus the required W2 info sheet)? I assume there always exists "Plan B" where the client could instead choose the part-year resident/allocation method instead. And it also seems the magic 183 days/wage income only restrictions are critical.

A couple of questions that do come to mind:

--- Obviously the "VA resident" must still report, and pay taxes on, all 2011 VA/WV income on the VA state return. Correct?
--- What about any moving expenses? Did she move.....or did she not move since the VA tax return will bear same address as always? (Further gray zone: parental unit wants to claim dependent for 2011, as well as head of household, and aside from the strange WV issues can most likely do so...)
--- Where does the person "cross the line" for NOT still being treated as a VA resident? Such is usually associated with changes in auto registration, insurance, etc. It almost appears to be a non-issue so far as WV issues for this year....and apparently VA agrees?
--- What is the logic of WV to, it appears, forgo any and all state income taxes for "new" quasi-residents who do meet these filing qualifications?

FWIW, I did previously send a request with questions such as these to the WV State Tax Department. They were most helpful - "please read page 30 of the instructions".........

It goes without saying, for 2012 the circumstances will change and regular WV tax returns will need to be filed (unless another move occurs??).

Thanks to anyone who can perhaps un-muddy these waters for me!

FE

[Burke]

VA also has such a form, Form 763-S, in which the taxpayer is considered NOT to be a resident and falls into one of four specific categories. (See form). The only case in which I have used the WV-IT140NRS was for a client who lived in Virginia but worked for a WV railroad, and they withheld WV taxes. Of course, all the income was reported in VA and he paid VA tax, getting a full refund of WV withholding. He eventually got the employer to change it but it took several years. I have used the VA763-S for the same purpose for other clients who did not live in VA, but whose employer withheld VA tax in error. For someone who actually moves into or out of the state, a part-year tax return is required. The address used on the return is immaterial; however, it may produce some letters from state authorities if a (certain state) address is used, and there is no income reported to that state, as they may suspect the TP is an actual resident. This is less of a problem in a year where the TP is being claimed as a dependent by the parents. Normally, because the TP actually moved to WV, she would file a part-year return in each state assuming there was income in each state. (In VA, she can claim herself even if her parents claim her.) As you can see by the WV form, it is intended only for residents of the border states. This is primarily for those persons who may live in one of them and commute to WV to work.

[FEDUKE404]

Nice explanation

Burke, thanks for the input.

You and I basically are thinking alike, i.e. "common sense" would indicate the person moved from VA to WV with a part-year tax return required for both states. There is no commuting/temporary issue at all involved, in fact the person involved has lived in a dwelling in WV for the duration of the new job, albeit the total time there will be less than 183 days during 2011.

Both the WV and VA forms make some reference to the 183-day rule. See the following:

WV: "If you were a domiciliary resident of Pennsylvania or Virginia and spent more than 183 days within West Virginia during 2010, you are also considered a resident of West Virginia for income tax purposes. Therefore, you are not eligible to file this return and must file Form IT-140 as a resident of West Virginia."

VA: "I declare that during the taxable year shown above I was a domiciliary or legal resident of the state checked below. My only income from sources within Virginia was from wages and salaries, which are subject to taxation by the state checked below. I am not an actual resident of Virginia and I did not maintain a place of abode in Virginia for a total of more than 183 days."

It appears the wiggle room is built into the 183-day interpretation, exclusive of the domiciliary considerations. [ And perhaps on the 184th day no "interpretation" is allowed.... ] The parental unit has a vested financial interest to keep both the head of household filing status and the former student's personal exemption for 2011, as both will disappear in 2012. The fact that 100% of any WV tax withholding can be returned likely tilts the tables even more, I'm sure. Whether the WV income ever shows up as being taxable on the VA tax return (both start with federal income?) is an unknown. As I mentioned previously, the person involved is a long-distance friend and the mind of that person (with a little help from others...) is firmly made up that NO WV "tax return" is necessary. Since my signature will not appear on any of the relevant tax returns, I will just chalk this up as a learning experience.

My sole experience (barring actual physical moves) with this issue is for folks who live in NC and regularly work in VA (coastal areas). The paperwork is fairly simple: Declare all income on NC, file a VA non-resident tax return, and claim a corresponding tax credit for any resulting VA tax liabilities on the NC return.

I was curious about your stated single use of the WV Form IT-140NRS: Would it perhaps have been simpler to file whatever the WV non-resident tax return is, showing zero WV income and zero WV liability, and just get the improperly withheld payroll taxes back that way? I had to do that several years ago for a NY return (the client's payroll department was a bit "slow").

Thanks again!

FE

[Gary2]

The special form seems to just be part of a typical reciprocity arrangement, with slightly varying details depending on the residency state. More often, the work-state will just say file an ordinary non-resident return, possibly with an extra statement or box to check. But because of the varying details, apparently WV has created this specialized form. Of course, it's easier for everyone to just file the appropriate withholding statement with the employer to avoid the problem in the first place.

I agree that in this case, there's a change of residency, so the reciprocity wouldn't apply.

As for the parent claiming the dependency, the way the state return works out should have little effect. It appears that the half-year residency requirement is met (assuming the daughter lived at home right after graduation until moving to WV), so the real issue is support. State and local taxes aren't part of support, but they would affect the money that the daughter has available to otherwise spend on support - in this case, to the parent's benefit. Still, you have to be very careful, depending on the daughter's salary and living arrangement, who paid for tuition, etc.

[Burke]

Burke, thanks for the input.

I was curious about your stated single use of the WV Form IT-140NRS: Would it perhaps have been simpler to file whatever the WV non-resident tax return is, showing zero WV income and zero WV liability, and just get the improperly withheld payroll taxes back that way? I had to do that several years ago for a NY return (the client's payroll department was a bit "slow").

Thanks again!FE

IMO, the one-page IT-140NRS and/or the VA 763-S is simpler to file if all the withholding is going to be returned. In the NC resident case you mentioned, I think you could have done this as well, rather than the non-resident return with out-of-state tax credits. You have to attach the other state's return when you file the NR. And sometimes these credits are not equal depending on the tax rates. But then again, the simple one-pager involves paying (NC) and waiting for the (VA) refund. Unless you file early.

[FEDUKE404]

More on two-state income scenarios

IMO, the one-page IT-140NRS and/or the VA 763-S is simpler to file if all the withholding is going to be returned. In the NC resident case you mentioned, I think you could have done this as well, rather than the non-resident return with out-of-state tax credits. You have to attach the other state's return when you file the NR. And sometimes these credits are not equal depending on the tax rates. But then again, the simple one-pager involves paying (NC) and waiting for the (VA) refund. Unless you file early.

I don't recall having any personal situation where (knowing up front) all of the "foreign" tax withheld was going to be returned. Perhaps something like a student who worked for a few weeks at a beach on the Grand Strand??

Everything I have encountered, short of an actual/legitimate state-to-state move, has involved a person with domicile in one state but who also has (regular) employment income from another state. Sometimes in a MFJ scenario one spouse works in one state and the other spouse works in another. I also have a couple of clients who have rental income (only) from a foreign state.

IIRC, the available tax credit is the lesser of the tax the "home" state would have applied to the income relative to the amount of tax the "foreign" state actually applied to the same income.

As for attaching any extra copies or whatever, that is a complete non-issue for me as most returns are now efiled and I assume the software figures out who gets sent what over the wires.

Regarding the original question posed here, I doubt if my "advice" will be sought...but the learning experience here has been worthwhile.

FE

[Gary2]

I don't recall having any personal situation where (knowing up front) all of the "foreign" tax withheld was going to be returned. Perhaps something like a student who worked for a few weeks at a beach on the Grand Strand??

The thing that's different here, and perhaps confusing, is that WV and VA have a reciprocity agreement. In those cases, it's normal that all of the foreign employment taxes withheld will be returned, when the taxpayer is a resident of one state and employed in another. However, that reciprocity doesn't apply to your client because she actually moved.

[FEDUKE404]

For certain commuters, I guess that is an approach

The thing that's different here, and perhaps confusing, is that WV and VA have a reciprocity agreement. In those cases, it's normal that all of the foreign employment taxes withheld will be returned, when the taxpayer is a resident of one state and employed in another. However, that reciprocity doesn't apply to your client because she actually moved.

Where I am obviously getting lost here is how (for commuters) the "foreign" state (WV or VA) under certain circumstances apparently just ignores the tax on any wage income earned within its borders. Must be some serious politicking going on??

For comparison purposes, don't folks who reside in CT or NJ or PA but who have a regular job in NYC have to file/pay both NY state taxes and NY City taxes on the wage income??? And a similar arrangement for folks who reside in NC but regularly work across the state line in VA apparently applies, i.e. they do not (normally) escape some VA income taxes.

And then there is also the pesky issue of having any non-wage income involved in the scenario, even for the WV/VA folks... Having such apparently negates the use of the "send it all back!" forms.

FE

[luke]

feduke404

Sorry I got into this "late" (have not been looking at forum regularly this summer) - everything that has been posted about WV / VA seems to be accurate EXCEPT the stmt that since returns are efiled you "assume" that states can figure out what has been sent to each other? NOT WV - we spend LOTS of time each year following up on "notices"/FAXING copies of other state returns etc! EVERY year we are told that this wont be an issue THIS year - every year same thing (or some slight variation) that causes US more work! This year WV could not figure out Non-resident withholding paid by S-corp (for an individual) should be withholding to be applied to an individual filing non-res return - Good Grief!

[Lion]

Ny

NY doesn't have any reciprocity agreements with any other states that I'm aware of. My CT commuters have to file a NY non-resident return and owe STATE taxes to NY but (thanx to a CT/NJ push by attorneys general) do NOT pay NY CITY taxes for the last several years. Their NY state taxes are based on their NY-sourced income as a ratio of worldwide income, so days out of NY and all non-NY income such as passive investment income and retirement income can lower that ratio. Then they have a credit on their CT return for what CT would've taxed them on their NY-sourced income. (CT raised its rates a year after NY, but still has lower rates.)

[FEDUKE404]

Reference not clear

....EXCEPT the stmt that since returns are efiled you "assume" that states can figure out what has been sent to each other? NOT WV - we spend LOTS of time each year following up on "notices"/FAXING copies of other state returns etc! EVERY year we are told that this wont be an issue THIS year - every year same thing (or some slight variation) that causes US more work! This year WV could not figure out Non-resident withholding paid by S-corp (for an individual) should be withholding to be applied to an individual filing non-res return - Good Grief!

Obviously I cannot speak for how WV (or any other state) processes their incoming tax returns.

My original statement was directed at my own efiling software "knowing" what to send electronically to each state involved. Hopefully this would include such things as a "copy" of the tax return for any other state, perhaps a copy of the federal return, and whatever else is required for the software to pass muster so that a complete transmission is ultimately provided to each state.

I have efiled a bunch of part-year resident and non-resident tax returns for a large number of states. However, WV is not yet one of them. So far I've not encountered any issues related to the state(s) involved not receiving all of the appropriate tax information via the transmission.

FE

[Lion]

Ct & Pa

CT requires ME to keep a copy of the NY/other jurisdiction return for an efiled CT resident return with a credit. PA requires me to fax them a copy (mail is probably acceptable) of the NY/other jurisdiction return before they will process the PA resident return with a credit. Your mileage may differ.

[Gary2]

For comparison purposes, don't folks who reside in CT or NJ or PA but who have a regular job in NYC have to file/pay both NY state taxes and NY City taxes on the wage income???

An excellent choice of examples. As Lion pointed out, NY has no reciprocity agreements so the result is as he explained - NYC being a special case.

However, NJ and PA do have a reciprocity agreement. Someone who lives in NJ but works in Philadelphia only has to pay state income taxes to NJ. If they've filed the proper withholding statement with their employer, then there won't be any PA withholding and no state return required. Likewise, someone who lives in PA and works in NJ only has to pay PA state income taxes. (I'm deliberately omitting any municipal wage taxes, as I don't know the details that well.)

And if you really want to stretch your brain, CA and several other, mostly western states have a different, more complicated type of reciprocity.

[FEDUKE404]

California nightmaring

....And if you really want to stretch your brain, CA and several other, mostly western states have a different, more complicated type of reciprocity.

Thankfully, I have stayed away from being involved with any tax returns from the Left Coast, with an AZ part-year resident return being the closest venture into that region.

What I do find interesting in this thread is how many different approaches the various states do offer, and sometimes the "logic" is almost contradictory in nature.

Even getting back to the original topic of this thread: The tax situation is clearly one of a VA resident changing residency and moving to WV for a new job situation. A part-year resident return is needed for both states. BUT the friend (and the friend's "tax advisor") for now can apparently hide behind the reciprocity/less than 183 day curtain and most likely escape. Were I to be actually preparing the tax returns involved, I could predict much locking of horns.

Thanks again to everyone who responded!!

FE

[Burke]

Even getting back to the original topic of this thread: The tax situation is clearly one of a VA resident changing residency and moving to WV for a new job situation. A part-year resident return is needed for both states. BUT the friend (and the friend's "tax advisor") for now can apparently hide behind the reciprocity/less than 183 day curtain and most likely escape.FE

And it will probably work. However, that does not mean it is correct. I feel pretty confident it was not the WV legislators' intention for the full withholding to be returned to a part-year resident of WV, simply because they did not meet the 183-day rule.