W2 with state wages exceeding federal wages - tax treatment in home state

Forum|Forum|5 years ago
April 2, 2021
1 reply
23 views

I have a client with a W2 with wages from two states (AL and PA)

The AL wages + PA wages are more than Federal wages

In prior years the prior accountant included all state wages as income on the home state of Alabama.

For instance if Federal wages were 100,000 and AL wages were 10,000 and PA wages were 120,000 then the total wages shown on the Alabama Return was 10,000 plus 120,000 totaling 130,000.

Is this correct? I know in Alabama the resident is taxed on all of their income - but it doesn't seem right to include MORE wages on Alabama just because PA may not allow the same deductions for 401k etc. ??

ProConnect Tax

This topic has been closed for replies.

T

TylorValdez1

Level 6

The input requires 3 entries. 100000 to US with no source. 10000 to AL with S for source. And 120000 to Pa with S source. The AL return should then only show the 100000 on line 5b of form 40.

E

EmsBTW2016Author

Level 4

Thank you! This is how I have it entered, and it is pulling those amounts to the Alabama return line 5b (the total federal wages).

It looks like the prior preparer made a mistake by including PA wages as Alabama income. PA wages do not allow certain deductions like 401k and those those contributions are taxable, causing the PA wages to exceed Federal. I did not think it looked correct to have those higher wages taxed as Alabama income.

I am strictly working on 2020 tax returns right now but I think this would be worth amending after tax season? The prior year AL income is over 19k more than it should have been.

T

TylorValdez1

Level 6

An Amended return for 2019 for the state would be appropriate and would help the client. Plus you can charge them a fee for the work.

Sign up

Login with SSO

Let's get you signed in

Login with SSO