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Hi,

I live in NC but work in VA. I have some small amount of NC taxes from a monthly retirement check I receive but 90% of my income comes from a VA company.

So when I file my NC taxes I end up paying a penalty because I haven't paid enough taxes throughout the year (regardless that I settle up at years end).

My question is that I get a refund from VA taxes (which I end up sending to NC) but not a 100% refund. So am I actually paying VA taxes or are they sending that money to NC?

I want to reduce my VA taxes and start making quarterly payments to NC to prevent getting penalized but wasn't sure as to what level I could reduce them or even how much NC tax I need to pay quarterly.

Any suggestions would be greatly appreciated.

Thanks,
Rut
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I live in NC but work in VA. I have some small amount of NC taxes from a monthly retirement check I receive but 90% of my income comes from a VA company.

So when I file my NC taxes I end up paying a penalty because I haven't paid enough taxes throughout the year (regardless that I settle up at years end).

My question is that I get a refund from VA taxes (which I end up sending to NC) but not a 100% refund. So am I actually paying VA taxes or are they sending that money to NC?


I assume this situation began in 2011 or you'd know how it works. I'm also going to assume that you were a full-year resident of NC. If I'm wrong, stop reading and correct me.

As a NC resident you pay NC income tax on your entire income regardless of source. As a VA nonresident you pay VA income tax on only your VA-source income. NC gives you a credit based on the tax you pay VA. You can ask your employer to withhold NC tax as well as VA, but they're likely not required to or they'd already be doing it. You probably need to make estimated tax payments to NC to avoid a penalty.

You prepare your returns in this order:

1. Federal
2. VA nonresident
3. NC resident

Phil
Rule Your Retirement Home Fool
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I live in NC but work in VA. I have some small amount of NC taxes from a monthly retirement check I receive but 90% of my income comes from a VA company.

So when I file my NC taxes I end up paying a penalty because I haven't paid enough taxes throughout the year (regardless that I settle up at years end).

My question is that I get a refund from VA taxes (which I end up sending to NC) but not a 100% refund. So am I actually paying VA taxes or are they sending that money to NC?

I want to reduce my VA taxes and start making quarterly payments to NC to prevent getting penalized but wasn't sure as to what level I could reduce them or even how much NC tax I need to pay quarterly.

Any suggestions would be greatly appreciated.


The general rule for state level taxation is that your resident state will tax you on all of your income, no matter where it comes from. Non-resident states will tax you on the income which is generated from activities which take place in that state. This can easily lead to a situation where you are taxed twice on the same income. Realizing that this is a significant burden on taxpayers, most states will give you a credit against their tax for tax that you paid on the same income to another state. Usually, though not always, this is a credit on the resident return for taxes paid to the non-resident state. Some pairs of states do it the other way around (credit on the non-resident return) and some pairs just exempt the income from taxation in one of the states.

In your case, you are paying tax to both VA and NC. Your employer is overwithholding tax for VA. When you file your VA return, you get the excess refunded to you. VA doesn't send the unrefunded portion to NC, NC just collects less tax.

What you need to do is the following: VA must have a state form which is equivalent to the federal W-4. You can adjust (reduce) your withholding so that your VA return is closer to break-even at year end. Similarly, if your income pattern is fairly consistent from year to year, you can determine what your NC shortfall is. Divide it by four and that's how much you should be paying in "quarterly" estimates. (Note: the preceding sentence was written without any knowledge of the specific rules for estimated taxes in NC, so it may not be accurate.) In any event, NC should have a form and/or worksheet for calculating your estimated taxes.

Ira
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Why not just initiate witholding on the NC pension?
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Why not just initiate witholding on the NC pension?

That might work, but OP indicated that only 10% of total income comes from the NC pension, so even if 100% of it was withheld for NC taxes that might not be enough to avoid the penalty without additional ES payments.

Phil
Rule Your Retirement Home Fool
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