Remote worker had state taxes withheld

[MeadowYak]

My Client lives in Washington State and works in Marketing for Ford Motor Co. She does her work from her home and occasionally, maybe once or twice a year visits the corporate office in Michigan for meetings, etc. Her W2 showed all her income attributed to MI and about $8000 in taxes withheld. I think all of this should be refunded because she lived and performed work in WA. It shouldn't matter that Ford is based in MI, right?
Just checking here because I'm guessing if we file for all that to be refunded she'll get some pushback form the MI DoR since it shows this as MI income on her W2. How can I prep her for this pushback? what evidence should she have on hand to show her status as an out of state resident and worker? Should she request a new, corrected W2 be issued by her payroll dept?

Thanks for your thoughts

[Lion]

https://www.michigan.gov/taxes/questions/iit/accordion/covid19-tele/are-wages-earned-by-a-michigan-resident-who-is-telecommuting-from-a-location-in-another-state-subje

[MeadowYak]

Thanks,
And yes I actually have review that Michigan State site. The issue here is different. This taxpayer is a resident of Washington State but Michigan Taxes were withheld all year. I can't figure out why, but it seems in error. I believe Michigan Tax should not have been withheld in the first place as she doesn't live there or perform work there.
If you've encountered this issue before did you;

A) just correct it in the tax return, get the refund and wait for the inevitable call from Dept of Rev?
or
B) request a corrected W2 before even bothering to file the state tax return?

Any other strategies?

[Anarchrist]

Did she ever live in MI? Did she fill out a MI W4 or a WA W4? Ford withheld MI tax, paid the tax to MI, listed it on each paycheck as MI tax withheld. So I doubt a corrected W2 will change the withholding from MI to WA unless she requested WA withholding and Ford screwed up. Ford might change the wages from attributable to MI to attributable to WA.

File a non-resident return. Claim the refund. MI will probably delay the refund and request verification. The days worked in MI would be taxable to MI.

[Lion]

What did she put on her Form W-4 MI equivalent to Ford? When did she notify Ford that they were withholding MI taxes. How much did she earn during her trips to MI for meetings at Ford? What did her payroll company tell her? How long ago did she request a corrected Form W-2 from Ford? Extension.

"The nonresident is not subject to tax on wages earned while telecommuting from a location outside the city. However, any wages earned by a nonresident while working within the City of Detroit are taxable. See line-by-line Instructions for Form 5119, 2021 City of Detroit Nonresident Income Tax Return.
City Income Taxes and Telecommuting FAQ - State of Michigan
Michigan (.gov)
https://www.michigan.gov › taxes › citytax › banner › ci..."

[Anarchrist]

The nonresident is not subject to tax on wages earned while telecommuting from a location outside the city. However, any wages earned by a nonresident while working within the City of Detroit are taxable.

Though MI law is basically the same as the quote above, that quote is for city of Detroit income tax, not Michigan income tax. Ford isn't located in Detroit so you don't have to worry about filing a Detroit return.

P6 of MI instruction book:

Resident. You are a Michigan resident if Michigan is your permanent home. Your permanent home is the place you intend to return to whenever you go away. A temporary absence from Michigan, such as spending the winter in a southern state, does not make you a part-year resident. Income earned by a Michigan resident in a nonreciprocal state (see “Reciprocal States”) or Canadian province is taxed by Michigan, and may also be taxed by the other jurisdiction. If you pay tax to both, you can claim a credit on your Michigan return. See instructions for MI-1040, line 18 and the example starting on page 9.

Nonresident. Use Schedule NR to figure your Michigan taxable income. You must pay Michigan income tax on the following types of income:
• Salary, wages, and other employee compensation for work performed in Michigan, unless you live in a state covered by a reciprocal agreement (see “Reciprocal States”)
• Net rents and royalties from real and tangible personal property in Michigan
• Capital gains from the sale or exchange of real property located in Michigan, or of tangible personal property located in Michigan
• Patent or copyright royalties if the patent or copyright is used in Michigan or if you have a commercial domicile in Michigan
• Income (including dividend and interest income) from an S corporation, partnership or an unincorporated business, or other business activity in Michigan
• Lottery winnings
• Prizes won from casinos or licensed horse tracks located in Michigan. Nonresidents from reciprocal states must also declare these prizes as taxable.

Your client is a MI non-resident. She should file schedule NR. Michigan will probably contact her for verification of her residency and will list the items they want her to submit. That may include a letter from her employer. Even if they don't contact her, Michigan tends to hold up large refunds. The "where's my refund" page will say "under review". It will say that for months with no further info. Then one day in November, she'll get her refund.

[Lion]

I know. Every time I searched the MI site for non-resident income taxes, it ends up describing non-Detroit-resident income. I still think she has MI-state-sourced income for the days she spent in MI during 2022 and files a nonresident Schedule NR to report her Michigan-sourced income.

[MeadowYak]

Thank you,

This is exactly how I've interpreted it and I did read the instructions from the Michigan Tax Book. She has to file that Michigan NR return just to reclaim those withholdings, no way around that. And she will for next year too because she's got withholdings in 2023. And we'll probably need to amend last year return as well for the same reason. This is a new client of mine fyi, and I think she's kind of like WTF. She maybe spent all of 2 days in Michigan when doing some corporate training and face to face meetings. Not really sure how to parse out those earnings but also I'm not too worried about that. Otherwise all work was performed while in Washington.

I work alone and if there's one thing I miss about working in a office with other people it is the ability to bounce questions like these off of coworkers. It's easy to get caught up in my own echo chamber. I really appreciate those of you who have chimed in with thoughts and insights even when they just confirm what I already am assuming. Thanks "Anarchrist' especially for the thoughts on what to anticipate from the Michigan end

[Lion]

I tell clients that I may work alone, but I'm not alone; I have my virtual water cooler!

Throw MI a bone of a couple days, pro-rate, in MI, so MI-sourced income = (Z days in MI / total working days) X Box 1 income, or similar proportion.

Tell her to change her withholding right this minute!!

[MeadowYak]

Thanks 'Lion'! That's a great way to look at it this with regard to the few day spent in Michigan. I will get a more precise idea of the time she spent there on work trips and likely apply the pro-rata as you suggest. And trust me, I've conveyed the 'stop MI withholding ASAP" message quite clearly. Thanks again

[FEDUKE404]

There is obviously some MI taxable income to report. (Can't get much of a tax credit for those MI taxes in WA. . .)
Curious as to what (state) mailing address is present on the W2.
Is there a possibility, with the facts given, that the MI income could be deemed "part-year" versus "non-resident" income?
Agree that a thorough review of employee W4 might resolve some of these matters. It's certainly not unusual to show income on a W2 from >1 state source. Certainly Ford Motor Co could figure it all out. . .

[Anarchrist]

that the MI income could be deemed "part-year" versus "non-resident" income.

Not from the facts presented in the OP, but it wouldn't matter as the forms are the same for both and the proration of income & exemptions is the same for both

Certainly Ford Motor Co could figure it all out. . .

It's amazing what these large firms are unwilling to figure out

[FEDUKE404]

Not from the facts presented in the OP, but it wouldn't matter as the forms are the same for both and the proration of income & exemptions is the same for both


It's amazing what these large firms are unwilling to figure out

Guess I'm brain dead at this time of year, but I seem to recall some states literally count the days a person works within a state as days of "residency" for certain tax calculations.
It was a speculative question, and had zilch to do with the fact that a PY / NR return may be on the same tax form and/or calculated in a similar manner.

Carry on.