Allocating earned income is easy if you stopped working for an employer in one state and started working elsewhere after you moved. All you need to do is look at your W-2 or 1099-MISC. Allocate the income from your former job to your former state and your income from the new job to your new state.
What if you continue working at the same job while living in 2 different states?Some companies will send you a W-2 with the state totals listed, others will send you two separate W-2’s for each state. If not or they didn't change the withholding to the second state, then you’ll have to estimate how much income you earned as a resident of one state versus the other. Here's a few ways to do that:
Method 1: This is the simplest method of all and the most accurate if your income fluctuates from paycheck to paycheck.
Find a pay stub with the pay period ending around the time of your move. The YTD (year-to-date) amount on the pay stub is how much you earned while residing in your former state.
Method 2: This method is pretty accurate as long as your income is more or less the same from paycheck to paycheck.
Estimate the number of weeks/months you worked at that job while a resident of one state and divide it by the total of number of weeks/months you worked at that job to come up with a factor. Apply the factor to your total income from that job to come up with the allocation for that state.
For example, if you worked at that same job the entire year and moved in early May,you earned roughly 4 months' worth of income (1/3 or 33% of your total income) in your old state. Multiply the total income from that job by .33 to obtain the allocation for your former state. The remainder gets allocated to your new state.
Method 3: This method is the most accurate, but it also assumes your income is more or less the same from paycheck to paycheck.
First, find the Julian date of your move (also called an ordinal date). Search for Julian date in your favorite search engine.
- For example, if you moved on August 8, 2022, the Julian date is 220, which simply means August 8 is the 220th day of 2022.
Then divide your Julian date by365 to come up with a factor, which should be less than 1.Apply your factor to the year's total income from that job to get the income allocation for your former state. The remainder is allocated to your new state.
Tip: Your payroll department may also be able to help. They should have access to time sheets and other records that can give you an accurate picture of your earnings before and after your move date.
As a financial advisor specializing in taxation and income allocation for individuals working across multiple states, my expertise lies in navigating the complexities of income allocation when transitioning jobs or residing in different states. My comprehensive understanding of tax regulations, specifically concerning W-2 and 1099-MISC forms, enables me to provide accurate guidance tailored to individual circ*mstances.
The article addresses a common challenge faced by individuals who have either moved across state lines or continue working remotely for an employer while residing in different states. To allocate earned income properly in such scenarios, several key concepts and methods are crucial to comprehend:
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W-2 and 1099-MISC Forms: These documents are vital in determining income allocation between states. When transitioning jobs or moving residences, these forms detail income earned and taxes withheld for specific states.
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Allocating Income from Former and New Jobs: If you moved after leaving one job and starting another, allocating income is straightforward. Income from the former job goes to the former state, and income from the new job goes to the new state. This allocation is typically evident in W-2 or 1099-MISC forms.
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Working for the Same Job in Different States: Individuals working remotely for the same employer while residing in different states may encounter challenges in income allocation, especially if the employer does not issue separate state-specific W-2s.
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Methods for Allocating Income: a. Method 1: Utilizes pay stubs with year-to-date (YTD) amounts around the time of the move to determine income earned while residing in the former state.
b. Method 2: Involves estimating the portion of time worked in each state as a ratio of the total time worked in that job to determine the allocation.
c. Method 3: Uses the Julian date (ordinal date) of the move to calculate a factor representing the portion of the year spent working in the former state, providing a more precise allocation.
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Employer Cooperation: Seeking assistance from the payroll department can be beneficial. They can provide access to time sheets and records, aiding in accurately determining earnings before and after the move date.
Understanding these concepts and methods is crucial for accurately allocating income earned across multiple states, ensuring compliance with tax regulations and preventing potential issues with state tax authorities.
Should you require further assistance or clarification on income allocation across states, feel free to seek advice from a tax professional or financial advisor well-versed in multi-state taxation.
