Money and Responsibility

What To Do When Your Form W-2 Has Multiple States

Have you or do you expect to get a Form W-2 from your employer with multiple states listed? While Form W-2 is familiar to most Americans, multiple state forms are much more rare. And they can be both tricky to file and potentially expensive if you get it wrong. Here's what you need to know about multi-state W-2s. 

What Causes a Multi-State Form W-2?

Simply put, a Form W-2 with more than one state listed in the 'state tax' section means that you were considered to be working in more than one state during the year. Because each state collects its own tax, employers must keep record of where employees work and report those earnings to the states when relevant. 

Your work may trigger this situation if you did a temporary job that crossed state lines. A person who does on-site work — such as installation or project management — in multiple locations may, in fact, get a W-2 with many states listed. It's also common when an employee moves. 

Why Is a Multi-State W-2 Challenging?

Multi-state forms are difficult because you must file income tax forms for all the states listed and potentially pay income taxes in each. The first obstacle is ensuring that your employer has correctly labeled your work in the right state and properly assigned the income from each. The second is that most Americans are not familiar with the state income tax filing rules for different states. 

The goods news is that you are often allowed to use taxes paid to other states as a credit in your home state. To do this, you would need to correctly fill out all the state tax forms and then properly claim these on your home state form to use it as a credit.  

What Should You Do With Your Multi-State W-2?

Even if you normally fill out your own income tax form, most people need help with multi-state income situations. Not only is there an increased risk that the figures are wrong, but you will also need to properly complete forms from one or more states you may not have ever filed for.

The best solution is to work with a qualified tax preparation service with experience in the states involved. They understand the different tax systems for states and will help ensure that your employer has not made costly errors creating your multi-state W-2. Make an appointment today with a reputable tax service to learn more about minimizing state taxes in this unusual situation. 

For more information, contact some professionals such as Ruben D. Rosas, Inc. Accounting & Tax Solutions.