W-2 with multiple states and a large amount listed as "exempt wages" on stub

[manyhappyreturns]

Client brings in a W-2 with Gross wages of $117,040 and Exempt wages of $38,908, with the difference (also minus deferred comp of $5,459 & FSA of $4,922) of $67,751 in Box 1. I've never seen anything like before. Do I just ignore the Exempt Wages or are they supposed to be reported somewhere?

Same client also worked in multiple states although he is a full time resident of California. The amounts on the W-2 add up to over $130,000 because it shows CA wages the total amount of $67,751, then the amounts entered as state wages for KA, MI and OK add up to $62,254. This doesn't make any sense to me at all, and I'm thinking my client may need to get a corrected W-2 from his employer.

Any input would be much appreciated. Thanks!

[FEDUKE404]

More info needed

Exactly WHERE on the W2 is "exempted wages" appearing?

If just in an explanation block, such as Box 14, I would not be overly concerned. The "real" numbers are those shown in the W2 "wages" box for federal and state(s) income.

That is a pretty large difference, but could be explained away easily with all relevant facts, which might include temporary living expenses, moving, medical expenses, or who knows what else?!?

As for the state differences, it is not unusual for some things (from the same "income") to be treated differently as defined by "federal" income versus "state" income guidelines. (Perhaps someone with more experience with CA or OK or KA or MI can chime in?)

I would suggest you try to gather all pertinent facts/explanations before you/client start searching for a "corrected W2."

FE

[Lion]

Some states required the state income to equal the federal income, especially the resident state. Then, any credits or other calculations reducing that amount happen on the state return. I see lots of W-2s with NY and CT where the state income adds up to more than the federal income.

[manyhappyreturns]

The Exempt wages appears on the explanation stub where it shows deferred comp and FSA amounts as well. It clearly shows "Taxable Wages" being the same number as in Box 1.

[manyhappyreturns]

I still haven't solved the state tax dilemma. I can claim "other state credit" on the CA return (for these states anyway; there are a few states that the credit needs to be claimed on the other state return), but what happens is the credit is a percentage of the tax paid to the other state based on the total amount of state wages reported on the W-2, so the client is only getting partial credit for the taxes he paid to the other states. The percentages the states are using for the credit are based on total state wages of $130,005, which is almost double what the client actually received in income.

[taxea]

Instructions for a W2 do not come from the state. Anyone who has deferred comp would have a different gross income reported in the state section of the W2. Box 1 shows gross income and SS box shows taxable income (after pre tax items have been deducted. These items are normally listed in box 5 or 14. Do you have a copy of the TP's final pay stubs? This might help.
The amount posted to Sch A other tax should be a total of the amounts show as withheld per state on the W2/s. On each state return post a credit of the total amount minus the withholding of tax paid to the respective state.

[FEDUKE404]

Need to prepare tax return for each state

I still haven't solved the state tax dilemma. I can claim "other state credit" on the CA return (for these states anyway; there are a few states that the credit needs to be claimed on the other state return), but what happens is the credit is a percentage of the tax paid to the other state based on the total amount of state wages reported on the W-2, so the client is only getting partial credit for the taxes he paid to the other states. The percentages the states are using for the credit are based on total state wages of $130,005, which is almost double what the client actually received in income.

For each state, you will need to prepare a state tax return for that single state. Since you are likely dealing with part-year residency/non-residency issues, somewhere on each state tax return you most likely will need to show the per cent of the state wages relative to the federal total. This allocates how much of the personal exemption and/or standard deduction that can be used on the individual state return(s).

Since you stated the client is a full-year resident of CA, expect ALL wage income to be shown, somewhere, on the CA return. (There may be a difference between the total CA amount and the US amount.) The CA return will ALSO need to report the "other state" income, but should allow an offsetting amount for the state taxes paid to the "foreign" state on that specific income. In most instances, the credit is the lesser of the amount of tax that CA "would" have assessed for that added income compared to the actual state tax paid (via a state income tax return you prepare, not merely a W2) to each foreign state. Expect to provide/attach a copy of each state TAX RETURN to the CA tax return to authorize any credit for taxes paid to another state.

The theory is quite simple. Depending on how well your software handles multi-state returns, it could be awkward to fit the pieces together. The first, and most important step, is to accurately enter the W2 information especially for Boxes 15, 16, and 17. Most software can easily handle six states or more for that data input.

FE

[manyhappyreturns]

FIgured it out

Okay, I think I have it done correctly now. It took some tweaking, but I'm happy with the results, and I'm sure the client will be, too, because he will only owe tax to California and will be getting small refunds from the other 3 states, as well as a rather large refund from IRS. The biggest problem was that I'm doing this all on a brand new software that I am just learning, because I was one of those unlucky folks who bought into TRX and ended up with a piece of garbage for software, so had to switch gears last week and buy and learn a whole new program. Of course, not being familiar with all of the states' laws was a factor, too, but I believe I learned a lot about the state laws and my new software as well by muddling through this return. Thanks everybody for your input.

[Bonnie]

I bought the Tax Book State Edition this year for the first time due to the fact I have customers in many states and wanted a good resource for state returns. It came this week and I feel I made a good investment.

[manyhappyreturns]

I bought the 2010 version of the All States TaxBook and I've used it a lot, but I don't use it enough to warrant $80 a year. The basic way the state tax laws work doesn't change too much year by year, so I use the info in it to get a basic idea of how the state return I'm doing works and I also go to each state's website for info. The book gives basic guidelines, but of course most of the info for each state is on their website or in the publications and form instructions. Otherwise the book would be too heavy to carry!

[DaveO]

Is your client an oil field worker by chance? This may be living and transportation expenses that offset what they would report on a 2106.

[manyhappyreturns]

He works for Granite Services International and travels a lot, which is why he has income in 4 states. His wife told me he gets reimbursed for lodging and gets a per diem allowance for meals. So I'm assuming I can just ignore that "Exempt Wages" amount on the W-2 stub. That amount is not in any of the boxes on the W-2 and the box 1 amount is clearly labeled on the stub as "Taxable Wages."

[Gary2]

He works for Granite Services International and travels a lot, which is why he has income in 4 states. His wife told me he gets reimbursed for lodging and gets a per diem allowance for meals. So I'm assuming I can just ignore that "Exempt Wages" amount on the W-2 stub. That amount is not in any of the boxes on the W-2 and the box 1 amount is clearly labeled on the stub as "Taxable Wages."

I've seen things like 401k contributions labeled "exempt wages"on the stub.

[taxea]

I bought the Tax Book State Edition this year for the first time due to the fact I have customers in many states and wanted a good resource for state returns. It came this week and I feel I made a good investment.

I save the money and pull the instructions from the state tax site online.