Tax question on grossed-up relocation reimbursements and dual states.

[StageLeft]

I had some relocation expenses covered and though some were reimbursed directly back to me (I was out of pocket until they were reimbursed), most were paid on my behalf to a third party and are reflected as income on my W2 (with a commensurate increase in federal & state taxes paid on my behalf as well, to even things out).

Question: Do I need to make this fact known in my tax return? I see no place to do it and as far as I can tell, my taxes only care about my W2, so this info is "hidden" within the W2.

Dual states question: I have some income from Alabama and some from New York. I presume that NY only gets taxes from money I made here and Bama from taxes I made there. What am I in regards to residents of the states? I lived in NY for the last 1/4; so am I simply a part-year resident for both AL & NY? Also, does taxcut handle this well? I tried to use taxactonline and I've just given up on it after entering data for two hours; its userface for double states is f**king atrocious, I have no idea what state I'm adding for or under who or what employer, just terrible. Also, Alabama has no part-year resident tax form but they do consider part-year residents in their tax code, what's that about?

 

[bennylong]

That would depend on the state you live in, I assume. I had to pay MI state tax even though I worked there for only 6 months that year and had to pay CA state tax working only 3 months back in 2000.

 

[Fern]

Relocation expenses? Sounds like you've moved, but your post is rather vague. See Form 3903 for deductible moving expenses and the circumstances required for you to take them.

This site is for tax info on Alabama. The link is to tax FAQs, but you can find everything at this site.
Alabama


This site is for definitions of residents, part year residents etc.
New York

Sounds like you're a part year resident.

If you were on an extended business trip, sent somewhere out of town for a while etc, it's a different case.

I have some income from Alabama and some from New York. I presume that NY only gets taxes from money I made here and Bama from taxes I made there

Yes, that's the general concept

Fern

 

[Dunbar]

I don't think you need to worry about the moving expenses since you are paying tax on the reimbursed amount. As far as the partial year resident what I did when I moved from IL --> CA I had to fill out two partial year state income forms. I took my total income for the year and divided it by 12. Than took 9 months worth for IL and the remaining 3 for CA. Did it all manually, and it was the first year I did my own taxes so it was pretty confusing.

 

[StageLeft]

I did move fully and completely, but when I hit up the 3903 moving form it asks about all the things I can deduct, and since they were all paid for me (or I paid them myself and had them reimbursed), it doesn't appear relevant. I did receive some tax form from the relocation company about a break down, but I can't see where in the tax return it cares, since the third parties were paid by the relocation company under my name and so if they paid $5k my W2 is increased by $5k and then another $1k to cover the taxes of $5k (so that I pay nothing).

NY does support part-year I see but Alabama has only a full-year return. If I made $500k in Alabama in 9 months and then $200k in NY in 3 months, ALabama seems to think they should be taxing me on the full $700k, even though I only made $500k there--at least according to taxactonline. I'm already starting fresh with taxcut online to see if it's any smarter, it seems so far to be, though it's like 3 X the cost but I don't care if it works.

 

[StageLeft]

OH, wouldn't it be impossible to be a resident of one state if a part-year elsewhere; wouldn't part-year in one state mean one has to be part-year on another? Taxcut seems to let me choose resident for both states, erroneously.

EDIT: Yep, now I know why people pay more for taxcut/turbo tax, this product (taxcut online) has far more checks and helpful crap than taxact.

 

[StageLeft]

Uh, I just noticed my bama employer sent my W2 to my new address, but they will likely furnish IRS with my new address, though I made that money while living in Alabama--does it matter that my W2 has my current NY address on it for my alabama employer's W2?

 

[Dunbar]

Skoorb, you fill out a regular form 40, see instructions for form 40 from page 5. The key thing to remember is to pro-rate everything.

Part-year residents of Alabama should only report income earned while a resident of Alabama. Itemized deductions must be prorated to reflect only
those expenses incurred while a resident of Alabama. Federal Tax Liability must be prorated by applying a percentage of Alabama adjusted gross income to Federal adjusted gross income in order to calculate the amount deductible on line 13 of Form 40. Part-year residents are allowed to deduct the full standard deduction, personal, and dependent exemptions.

With the moving expenses as long as they are all reflected on your W2 you do not need to worry about them. The increase to cover taxes is just another form of compensation like a raise or bonus, it changes nothing. Of course, you should itemize the moving expenses if your total itemized deductions exceed the standard deduction allowed by each state.

 

[StageLeft]

Thanks, Dunbar, it looks like taxact didn't prorate but I bet taxcut will. I'll find out soon and do it manually if not.

Of course, you should itemize the moving expenses if your total itemized deductions exceed the standard deduction allowed by each state.

100% of anything involved with moving was either expensed back to the company or given in the form of this "grossed-up" W2 (per tax laws, certain things they had to reimburse and others they had to gross-up), so in this case, there would be no need to mention moving expenses anywhere I presume, though I will do itemized deductions for all states and federal, even if no mention of moving.

Some link somewhere said the gov't doesn't get addresses on W2s anyway, so I don't think I need to worry about an incorrect one.

 

[Fern]

Originally posted by: Skoorb
I did move fully and completely, but when I hit up the 3903 moving form it asks about all the things I can deduct, and since they were all paid for me (or I paid them myself and had them reimbursed), it doesn't appear relevant. I did receive some tax form from the relocation company about a break down, but I can't see where in the tax return it cares, since the third parties were paid by the relocation company under my name and so if they paid $5k my W2 is increased by $5k and then another $1k to cover the taxes of $5k (so that I pay nothing).

NY does support part-year I see but Alabama has only a full-year return. If I made $500k in Alabama in 9 months and then $200k in NY in 3 months, ALabama seems to think they should be taxing me on the full $700k, even though I only made $500k there--at least according to taxactonline. I'm already starting fresh with taxcut online to see if it's any smarter, it seems so far to be, though it's like 3 X the cost but I don't care if it works.

Dude, if your employer put those 3rd party reimbursemnts in your taxable income (vis-a-vis the W-2) you should deduct them, it'll increase your refund.

I'm a tax CPA and a fairly common mistake employers do is to put that stuff in your taxable wages. Deductible expenses that an employer pays to third parties on the employee's behalf should not be reported on the W-2 in the first place.

You stand to benefit from your employer's error.

Fern

 

[StageLeft]

Originally posted by: Fern

Originally posted by: Skoorb
I did move fully and completely, but when I hit up the 3903 moving form it asks about all the things I can deduct, and since they were all paid for me (or I paid them myself and had them reimbursed), it doesn't appear relevant. I did receive some tax form from the relocation company about a break down, but I can't see where in the tax return it cares, since the third parties were paid by the relocation company under my name and so if they paid $5k my W2 is increased by $5k and then another $1k to cover the taxes of $5k (so that I pay nothing).

NY does support part-year I see but Alabama has only a full-year return. If I made $500k in Alabama in 9 months and then $200k in NY in 3 months, ALabama seems to think they should be taxing me on the full $700k, even though I only made $500k there--at least according to taxactonline. I'm already starting fresh with taxcut online to see if it's any smarter, it seems so far to be, though it's like 3 X the cost but I don't care if it works.

Dude, if your employer put those 3rd party reimbursemnts in your taxable income (vis-a-vis the W-2) you should deduct them, it'll increase your refund.

I'm a tax CPA and a fairly common mistake employers do is to put that stuff in your taxable wages. Deductible expenses that an employer pays to third parties on the employee's behalf should not be reported on the W-2 in the first place.

You stand to benefit from your employer's error.

Fern

They have a company that specializes in relocations doing this, so I really don't think they messed up, though I'd hate to lose potential savings, but I really don't think they did. The things I had to expense were hotel costs, a few meals and things like this. Other things as I understand it are not deductible, which is why the relocation company had to pay it but for some reason put it into my W2 and pad my paid taxes accordingly, these included moving the house, temporary living, etc. Although I have in some sense paid these because they are in my W2, I never actually gave anybody any money. If the relo company put $10k onto my W2 as gross income and then another $2k to cover the 20% (or whatever) taxes to pay that, surely there's no way I can then go ahead and deduct the $10k and then pocket that $2k free and clear. I do believe that everything they've put on the W2 are things that cannot be deducted, hence the safety in padding my W2 because I can't come in and then try and deduct them. I think if I could have deducted, they'd not have padded. I do wonder if maybe they didn't pad everything, though, anticipating that I'd deduct that.

 

[StageLeft]

Fern Thanks for the heads-up. I think they have grossed up some things and not others. For instance, it says "The costs incurred with the transportation of household goods are excludable as income to the employee,
and therefore this reimbursement will not be grossed-up for tax purposes." so if I failed to deduct that, I'd be out the taxes on the amount that moving cost, which is substantial. Thanks for pointing that out, I'll go through this line by line to see which items are grossed-up (not deductible) and which are not. I know the relocation company is too smart and competent to screw up so they definitely didn't gross-up deductible expenses.

BTW, are these things supposed to be on the W2 or does IRS just take my word for it (since I have a doc, but it won't be sent with e-file) that I spent such and such moving and so it's deducted?

 

[Fern]

Deductible expenses that an employer pays to third parties on the employee's behalf should not be reported on the W-2 in the first place.

AND

I do believe that everything they've put on the W2 are things that cannot be deducted

If the only things added to your W-2 wages are NON taxable expenditures, it has been done correctly and you have no deductible moving expenses to include/deduct in your tax return (I.e., the deductible moving expenses paid by your employer have not NOT been included in your W-2).

If it's a professional relocation firm I would expect (and hope) that they did it correctly.

Fern