Paying Taxes

[Suzanne P.]

PAYING TAXES

I'm not an expert on this, but I think if you earn $ in a state you can use the amount withheld in one state as a credit for whichever other states you lived in with higher TAX RATES so you end up only paying the higher rate between them. Federal taxes -- it doesn't matter which state you resided in.

[jrnutpaul]

Stop it....I confuse easily

Paul

[Pete Dumbleton]

Fifty states, fifty sets of rules and some of them are onerous. Some states, CA and UT come to mind, will involuntarily induct you into their ENTIRE state tax system (ALL income, like dividends, interest, capital gains, etc., not just earned income) if you are physically present in that state for a stated period of time, usually six months.

IOW, if you camp in one of those states for six months and a day, regardless of what state you may claim as a domicile and despite the fact that you didn't get paid a cent for any work you did in that state, you may be required to file and pay taxes on all your income. Of course, you have to come to their attention first.

I first learned about this from folks who were doing camp-contract work in Natl Parks in Utah and were in the state's data base because of their paychecks.

Were I a fulltimer in one of the affected states (I don't know them all, by any means), I would be SURE to work less than six months and also SURE to have CG receipts from outstate from right before and right after my work time to ensure I could prove less than six months (or whatever that state's interval is) physical presence.

[Frederick L. Simson]

Some states, [b]CA ... come(s) to mind, will involuntarily induct you into their ENTIRE state tax system (ALL income, like dividends, interest, capital gains, etc., not just earned income) if you are physically present in that state for a stated period of time, usually six months.

I retired from the US Navy Reserves in 1994. Due to the way the Military Reserve Pension system is set up, I will not collect retired pay until I reach my 60th Birthday in June of 2015. I vaguely remember reading something at the time of my retirement ceremony, that since the earnings those military retired paychecks were based on were paid out in California, then those military retirement checks will permanently be domiciled in California, and I will always owe California State Income Taxes on them, even if I later change my domicile to another state.

[Pete Dumbleton]

I don't think that applies anymore. The PRC (People's Republic of Calif), needing money for various questionable public needs, vainly tried to do that with ALL pensions, public and private and lost in court on the private ones. I dunno about the public ones paid by the state, but I'd guess that the federal ones are also exempt for folks who have moved their domicile from Calif. You definitely want to look further into this.

BTW, Calif is very aggressive about taxes, so one needs to have one's ducks in a row. A friend of mine moved from Calif to another state, failed to file a change of address with Calif, had his tax papers to his old address returned (the USPS forwarding notice only lasts six months), so the state immediately filed a Tax Lien in his name and it took some lawyer time to get his credit rating cleared.

[Pete Dumbleton]

BTW, if you earn money in a state or states with state income tax, likely you will need to file a state tax return in EACH state, regardless of domicile. How the deductibles and/or credits work will be up to each state and the IRS.

OTOH, the federal gummint doesn't care where you reside/domicile but if you earn money in a particular state, I believe you are required to file your federal taxes in the tax center which covers that state, not your domicle. There is also a requirement to keep the IRS notified of your mailing address if it changes...

[Greg A]

What if you're earnings were virtual? Say I sit in a campground in Wyoming and earn money through virtual work for companies in AZ, Utah, and VA for example. Are the laws up to date enough to cover that situation?

[Ed Felker]

Pete's story reminded me of something that happened to us invloving Calif.

From 1992 to 1994 we were assigned to Castle AFB in Atwater. I was a an active duty AF officer and PA resident, my wife worked as a nursing supervisor in CA. We filed a joint federal return and she filed in CA for the state income tax she rightly owed the state.

CA decided that because they are a community property state -- my income should also have been taxed (even though I was a PA resident, voting in PA by absentee ballet, and protected [suppossedly] by the Federal Soldier's and Sailor's Act). Unfortunately, CA decided all this long after we had been reassigned TWICE from CA -- once to AL for a one year school, and then again relocated from AL to VA.

Because the post office in AL never forwarded the already forwarded tax notice -- we knew nothing about this until we received a lien notice in VA. Since more than 4 years had passed, CA said we owed them (with interest and penalty) about $18,000.

What a pain in the rump. I had to hire a tax lawyer in CA who eventually got everything straightened out with the CA Franchise Tax system. So it only cost me $1500 in lawyer fees to get exempted from paying what I was already exempt from paying.

I have great compassion for CA taxpayers -- so beware how long you stay in that state -- their tax system has an awful long arm.

Ed

[Darwin Maring]

People think that they can destroy their tax records after 7 years because that is as far back as the tax man can go. That is an American Myth because the tax man can go back to the day you were born. Generally, you can get rid of old tax records provided you have been honest and correct. Should the feds/state send you a bill, you have to prove otherwise no matter which year the bill is for.

There is no room for argument here as it happened to me in Iowa.

Maryland and Virginia: If you work in MD and drive each day to Virginia and reside in VA then you file in VA.

Maryland: If you live in VA and earn $ in MD and reside in MD overnight, just 1 night, even if you sleep in a cardboard box under a bridge, then must pay MD tax and of course you still must pay VA tax and I had to have a CPA do my taxes to figure all this out. VA was prorated because I did not abandoned my abode in VA. What a mess.

While in MD, I had my camper in the Navy Camp ground and there were quite a few full timers there. They had Texas addresses with mail forwarding, did not earn documented income in MD, did not notify MD they were there and didn’t mess with the MD tax situation. Because they did not have documented work / earn income in MD the state had no record of them.

So the bottom line would be to work for Blue Sky (Cash Only) with no record reporting to anyone. I guess this would be similar to being an undocumented illegal alien.

To the military person: Your local JAG should have been able to provide you with a document to solve this issue. I did 20 years and my wife worked in several states and we had no problem concerning taxes. I can see where she might have had to file a non joint return because she was the only CA tax payer. Regardless, States and their Tax people are a major pain in the rear to say the least.

[Ed Felker]

AF JAG was no help -- they'll provide tax forms, but when you have a tax problem they can not represent you (at least that's the way it was inthe AF in mid 90s).

Compounding the problem for us was CA's rule stated you had to file in state with the same status as federal. Common sense would have said we file joint federal and she file CA Separate (she had to file as a CA resident because the Soldier's and Sailor's Act does not apply to dependents -- only the military member).

In filing the CA joint return, we claimed her income and excluded mine since it was not suppossed to be taxable by the State of CA under the SandSA exclusion. Again, they came after my income because (they claimed) although I was a PA resident, my income should have been included because of the CA Community Property Law.

By the way, I know lots of military folks that were asigned in CA that had EXACTLY the same problem (for a while, VA another community property state was trying to do the same thing to military members assigned in the state, resident of a different state, with a wife (or husband) working in the state). Ours was compounded because it was 4 years before we knew there was any problem at all, we were having to address a tax lean, and we no longer lived in CA.

[Pete Dumbleton]

What if you're earnings were virtual? Say I sit in a campground in Wyoming and earn money through virtual work for companies in AZ, Utah, and VA for example. Are the laws up to date enough to cover that situation?

If your earnings are virtual, I strongly recommend you do work for someone else who will pay you in real money

Well, Americans working overseas, who are paid in US funds deposited to a US bank account, are allowed to consider that as foreign earned income for the purpose of filing Form 2555, which implies that where your butt was when you earned the money is where the taxes must be paid.

I know this is also true when your residence is in one place, but you went and worked elsewhere; where you worked is your 'tax home', according to an IRS lady I asked on behalf of a friend of mine who was considering an out-of-state job while living in an RV park.

I recommend you call the IRS; I'm sure they have this worked out by now with all the telecommuting that's gone on in recent years, but likely the states have gotten their noses into it. Hard to imagine Calif or NY allowing a telecommuter in NV or NJ to do work for a company in-state and not try to gouge something out of him/her.

[Pete Dumbleton]

People think that they can destroy their tax records after 7 years because that is as far back as the tax man can go. That is an American Myth because the tax man can go back to the day you were born. Generally, you can get rid of old tax records provided you have been honest and correct. Should the feds/state send you a bill, you have to prove otherwise no matter which year the bill is for.

There is no room for argument here as it happened to me in Iowa.

I know that under the old capital gains rules for home sales, the IRS could question numbers all the way back to the first home, so retention records recommendations are to keep those record indefinitely. I believe that generally speaking they won't audit after seven years (or is it five?), however on suspicion of fraud (i.e., undeclared income) they can go all the way back.

Of course, there are likely to be 50 different sets of state tax laws, even in the non-personal income tax states.

[Pete Dumbleton]

Pete's story reminded me of something that happened to us invloving Calif.

I have great compassion for CA taxpayers -- so beware how long you stay in that state -- their tax system has an awful long arm.

Ed

I have a similar story, but worse, about Virginia. When I was in Germany, the father of one of my son's friends was in the USAF. When they were stationed in VA, VA taxed the federal income. When they moved to Germany, they quickly notified VA that they were now filing in the Home of Record state.

Unfortunately, when they were reassigned, they wound up back in VA and VA promptly declared that they left VA, came back to VA and were therefore VA residents the WHOLE time and owed taxes on the money earned in Germany.

Meanwhile, because they were residing in Germany at the time their son started college in VA, he was NOT eligible for the resident tuition.

I never did find out what the final resolution was, but it shows that the states can be very aggressive about this, so it's good to know the rules, esp if one plans to work on the road (Many FullTimes do just that, not being retired).

[Joseph and Melanie Castine]

Well, here's my situation.

Left NYC July 2005 retired teacher.
South Dakota legal resident since then.

for 2005 paid state taxes on money earned while living in NYC but not on my pension (not taxable in NYS), or money earned on book written during my travels although payee was in NYS.

2006 Resided part year in PA. Keeping SD as legal residence. Worked part-time as teacher.
for 2006 paid PA State taxes on money earned in PA but not on any of my pension (PA excludes first $50000, I think, of State and federal pensions, even out-of-state)

I guess if you choose the correct states it can work out. I don't mind paying state income taxes on income earned in a state. I just don't want to pay GreedyState taxes on income earned in FairState.

Joseph