Sum of State Wages on W-2 doesn’t equal Federal Box 1

[origun]

Taxpayer moved in August from VA to VT but continued working at home with same company. Approximate numbers on W-2 are Box 1: 77 K, Box 3: 83k, Box 12: 6K. So far so good.

Then Box 16: VA wages: 72K, VT wages: 13K. 72 + 13 doesn’t equal 77!
Software won’t let me e-file and suggests there might be something in one of the states that is taxable by state but not IRS. Any suggestions?

[Lion]

State wages do NOT have to add up to federal wages. I work with CT and NY, both of which list all federal wages in Box 16. Or, NJ which adds back something (401k? HI?). What matters is how you deal with the state wages on each state return. Some states start with federal AGI before any additions, subtractions, allocations &/or credits, while others build their own state AGI. Make sure you follow the flow from federal through VA and VT and are confident in the accuracy of the state returns. If so, contact your tax preparation software technical support to find out what your software requires to accurately report those two states. For instance, does VA use the Convenience of the Employee method to determine VA-sourced income?

[kathyc2]

Some W-2's have a summary section that lists out items such as 125. See if any of those numbers are the difference. If not, ask employee for final pay stub to find if there are items that make the difference. It also would just be a reporting error in the state section.

[origun]

Lion, Thanks for reply. I wasn't familiar with "Convenience of Employer" rules as just moved to the east coast where it seems to be more common. My superficial research tells me that neither VT nor VA have such a rule but will pursue the topic.

[FEDUKE404]

I haven't had the pleasure of preparing state tax returns of the type mentioned here, but I do know "they're out there."

Random question: Would not any pro tax software worth its oats be able to generate the proper numbers / adjustments for the state tax returns versus the federal wages, assuming the "state wages" were properly entered for each state involved?? The "state wages" amounts from the W2 should govern?

[origun]

As far as I can find out, VA doesn't use the "Convenience of Employer" to tax income when residing out-of-state and there are no other deductions listed on W-2 which could account for the difference. However, I have found out how to put in software to get state returns to come out with the state incomes as given on W-2. Before finalizing with between 6 and 7K doubly taxed income, I will talk with client about contacting payroll to make sure there wasn't an error. Thanks for help.

[Lion]

Ask client for his actual breakdown between VA and VT wages, probably from his paystub closest to his move date. Follow the federal AGI to the part-year resident state returns and then follow what each state asks. Read the state instructions for part-year resident returns. Tell tech support the exact error code. Does your software have a knowledgebase where you can look up the error code yourself? It might lead you to a specific data entry line.

[FEDUKE404]

As far as I can find out, VA doesn't use the "Convenience of Employer" to tax income when residing out-of-state and there are no other deductions listed on W-2 which could account for the difference. However, I have found out how to put in software to get state returns to come out with the state incomes as given on W-2. Before finalizing with between 6 and 7K doubly taxed income, I will talk with client about contacting payroll to make sure there wasn't an error. Thanks for help.

I cannot follow your logic of "doubly taxed income." Please explain how you reach that conclusion.

(Federal taxes all, and each state should tax only the income. . .from the W2. . .shown for that state. There is a world of difference between two part-year resident tax returns versus non-resident "foreign" state income where the home state generally taxes all income for a resident BUT allows a tax credit of some sort for the taxes paid to the other state on the "same" income.)

Lion's comments are spot on. Just carefully follow your tax software and take full advantage of its Q&A option.

[origun]

I finally got an answer! Client contacted employer and they admitted an error and will issue a corrected W-2. Meanwhile I learned quite a bit doing research on "Convenience of Employer" state taxation and some of the in and outs of VA taxes.