This article was written by guest blogger Eva Rosenberg.
A couple of months ago, someone wrote to TaxMama®, utterly shocked when he got his W-2. Early in the year, his company had relocated him from his home state to a different state. Somehow, the payroll department never changed his state withholding to his new location. This meant he hadn’t paid anything to his current state at all, and he now will be facing penalties when filing taxes.
I have great sympathy for this dilemma. Unfortunately, I see this kind of thing happening all too often—but I don’t understand how it can happen. It is your responsibility to take care of your own finances—not your employer’s. YOU have to look at your own paystub.
Can you think of ways to avoid a problem like this?
1) Don’t assume your boss or organization will notify the payroll department about your new location. Do it yourself.
2) Make sure to file a new set of W-4 forms—one for the IRS and one for your state. Include a cover sheet to the payroll department instructing it when to start withholding in the new state. Be sure to also tell the department to stop withholding in the old state. Incidentally, if you can’t find your state’s W-4 form, make a second copy of the IRS’s form. In BIG RED LETTERS at the top of the form, write the name of the state.
3) Don’t assume that the payroll department actually has done what you asked. Look at your paystub and make sure it is showing withholding in your new state. If it is not, contact the department immediately. Get the name of the person you speak to and write down the date, time, and email address or fax number. Follow up in writing so you have a record of the conversation.
4) Repeat step three with each paycheck until your withholding is correct.
5) If it takes a long time to get the change made, have the payroll department deduct a little extra for the new state in one of the paychecks.
Yes, you do have to wonder why someone in payroll doesn’t ask, “If we are sending a paycheck to one state, why does this person have withholding for another?”
The answer is that because payroll is essentially automated, the staff doesn’t routinely see the employee addresses on a week-to-week basis. They only see changes to a routine paycheck—like overtime hours, reimbursements, advances, bonuses, sick pay, or vacation pay. It won’t be readily apparent to payroll personnel that the withholding state and the mailing address state are different.
What’s if this is just a temporary re-assignment for a few months or a year, after which you plan to return to your home state?
Even though the move is temporary, when working in a state, you should expect to pay taxes there. Make sure you have withholding for that state’s taxes while you’re working there. You will be filing taxes as a non-resident in that state and as a resident in your own state.
Consult with a tax professional at the outset to ensure you won’t be taxed by both states. If there is any conflict, you can negotiate with your employer to make an adjustment in your wages. You can’t do this when you get your W-2—by then, it will be too late.
Sure, there are a lot of things to do when you move. But please, remember your withholding, too.
Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.