Received a letter a from NJ Division of Taxation several weeks back asking for W2 documentation from 2020/2021 timeframe, which I provided by email. Fast forward, last week I received this notice of deficiency advising I owe $1738 ($1315 in tax due from underreported wages, the rest in interest/penalties).
My question: anything I can do to challenge this, or did I just mess up/should go ahead and pay up? I file each year using TurboTax, and don't fully understand what I may have messed up here. It seems to be related to the fact that I live in NJ, but work in NY – so need to file returns in both states, and get a credit back for taxes paid to NY state. For some reason, the NJ state wages on my W2 were reported by my employer as $149k, but NJ is saying I should have paid on the $182k Federal reported amount. Does this make sense/any advice?
https://www.reddit.com/gallery/1fsdwcb
Posted by chaser713
2 Comments
basically NJ taxes all your income, with a credit allowed for NY taxes on whatever the NY-source portion of that income is. so you’d report all the wage income (not just NJ source), calculate the NJ tax on that, reduce it by whatever the NY tax credit is (probably the amount of tax paid to NY), and pay the difference
All the states are different and it’s confusing as hell – some like PA and NJ have a reciprocal agreements so you aren’t taxed twice and/or in the wrong jurisdiction, but NY and NJ don’t have one, so you have to effectively pay taxes in both states. NJ lets you get a credit against the NY taxes paid when you file, though.
Having only 149k to NJ is strange in my opinion if you live in NJ and work in NY. I would say that *looks* wrong to me. I would think all your wages are taxable in NJ. You pay non-resident taxes to NY for working in NY, and then take a credit for the non-resident NY taxes against what you owe in resident taxes in Jersey.
Also looks like they withheld nothing for NJ? All the withholding was in NY? Was your state allocation for NY the full 180k or was that the only state listed in your W2? Feel like the payroll was messed up to have like 80% of your wages taxable in NJ with no state tax withholdings. Small employer?
EDIT: Saw the screenshot with NY AGI of 324k, so they taxed it all for NY and then like 80% in Jersey, I’m pretty confident it’s a mistake on your W2. NJ’s calc looks right, and the penalty amount is tiny. You won’t get interest waived, so your probably on the hook for this OP. If you had the same employer still I’d mention this to them and get it fixed, and check your 2022/2023 returns. If this is a smaller company they might not be registered in NJ and so are just winging it.