I have paid state taxes in more than one state this year. How do take care of the situation?

Question

I have NM state taxes withheld from my pension. This year I also worked in CO and state taxes were withheld there. Will I have to pay state tax on the $ earned in CO in NM and will I have to try to recover that CO $ by filing a tax return in both NM and CO?

Answer 1

How you file will depend upon where your legal residence was.

If you lived in both states for part of the year you'll file part-year returns in both states listing only the income earned in each state while you lived there. If NM taxes were withheld on the entire pension you'll have to prorate the income and apportion it between the two states. NM will generally only be entitled to tax it while you were a legal resident there and then CO will pick up for the time you lived there.

If your legal residence was in only one state but you had income from both then it gets slightly messier. Since you had NM state taxes withheld from your pension, I'll go on the assumption that you're a legal resident of NM who also worked in CO.

You'll first file a CO non-resident return listing only the income earned in CO. Do not include any of the pension on that return, just the CO source income. Pay any tax due. Then file a NM resident return listing all income from all sources INCLUDING the CO income. NM will give you a credit for the CO taxes paid, at least up to the amount of tax that you would have paid on the income in NM. The effect of all this is that you will pay tax on the income earned in CO at the higher of the two states' rates. You won't be double-taxed though.

Answer 2

You will need to file a return for any state in which your state adjusted gross income is greater than the pertinent standard deduction or zero bracket amount. You may also want to prepare a state return if there would be a refund of any tax paid.

Answer 3

You will have to file returns in both states.

If you lived in NM, then you must report your CO income on both returns, but you can claim a credit on one return (not sure which) for the taxes paid on the CO income to whichever state has lower taxes. After subtracting the credit, you will effectively pay a net tax on the CO income at the rates of whichever state has higher taxes. You will pay only NM taxes on the pension, but may be required to report it on the CO return, but only in order to determine what tax rate applies to the CO income.

If you lived in NM, then you must report your NM income on both returns, but you can claim a credit on one return (not sure which) for the taxes paid on the NM income to whichever state has lower taxes. After subtracting the credit, you will effectively pay a net tax on the NM income at the rates of whichever state has higher taxes. You will pay only CO taxes on the CO income, but may be required to report it on the NM return, but only in order to determine what tax rate applies to the NM income.

Answer 4

If you were a part-year resident of both states, you will probably have to file returns with each as a partial-year resident. Your income is apportioned for tax purposes. Each state has forms for that.