How do I File a Part-Year Resident State Tax Return?
If you changed your state of residence during the tax year, you will normally file a part-year return in your old state as well as your new state.
Many states have a form specifically for part-year returns (often designated by the letters PY), whereas other states use the same form as residents and/or nonresidents. TurboTax will generate the correct form for your particular situation.
- Joe has lived and worked in New York for many years. Last summer, he found a better job in Pennsylvania, and in September he moved there to work for his new employer. He will file part-year returns for both New York and Pennsylvania.
- Mary lives in New York and commutes to her job in Pennsylvania. Every year she files a resident return for New York plus a nonresident return for Pennsylvania.
How do I create part-year state returns in TurboTax?
First, make sure TurboTax knows which state you moved from during the tax year:
- Click the Personal Info tab and proceed to the Let's Review Your Personal Info summary screen.
- Scroll down to the Your Other State Info section and click Edit.
- Answer Yes on the screen Did You Live In Another State in 2011? and click Continue.
- Enter the appropriate information on the Tell Us About Your Move screen and click Continue.
- Answer appropriately on the screen Did You Make Money In Any Other States? (Most people will answer No here.) Click Continue.
- You will return to the same screen you saw in Step 1, and when you scroll down you will see your former state listed next to the line Prior Resident Of.
TurboTax Online: When you get to the State Taxes tab, the program will show you the states you need, based on what you entered in the Personal Info section. If you are preparing one or more nonresident returns in addition to your part-year returns, make sure you prepare all nonresident returns first, to ensure proper calculations. To prepare returns in six or more states using TurboTax, you'll need to switch to the CD/Download software version.
TurboTax CD/Download software: You can purchase as many additional state products as you need. The simplest way is by choosing Download State from TurboTax's Online menu. Again, always prepare nonresident state returns, if any, before your part-year returns so that TurboTax calculates the credit properly.
For detailed information about purchasing additional state tax programs, click here.
How part-year taxes are prorated
TurboTax automatically prorates part-year taxes for your state, based on the dates of residency you entered. Here's some behind-the-scenes information on how those calculations are performed.
Most states calculate the tax on part-year returns by dividing the income earned in that state by the federal adjusted gross income to come up with a ratio or percentage. That percentage is then applied to the state tax amount (based on the entire year's income) to prorate the tax liability.
To illustrate, let's say you moved from State A to State B last year, and your taxable income for the year was $100,000. You earned $75,000 of it in State A, the remaining $25,000 in State B.
According to the State A tax table, the tax on your total income ($100,000) is $9,500. However, because you only earned $75,000 (75%) of that income in State A, a factor of .75 is applied to the $9,500 tax figure, and your tax liability for State A is reduced to $7,125 ($9,500 x .75 = $7,125).
Similar calculations are performed on the State B return, except State B applies a factor of .25 to the tax on your annual income because you earned $25,000 (25%) of your income in State B.
Now suppose you earned the entire $100,000 in State A, but you only lived there for 1 month. State A would tax your entire income without prorating because you earned 100% of your income there.
In other words, the length of residency is irrelevant to the tax calculations; what matters is the percentage of your total income earned in that state. So you wouldn't owe taxes to State B although you lived there for the remaining 11 months, because you earned no income there.
Length of residency may be relevant when allocating earned income. We'll cover that in the last section.
In general, part-year residents are required to report all income received while a resident, as well as income from services performed in a state or income, gains, losses, and deductions related to tangible property (property that can be physically touched, such as buildings, cars, computers, furniture, etc.) located in this state.
Income from intangible property, such as interest income, dividends, and pensions, is reported to your resident state (where you lived when you received the income).
Allocating unearned income
As you prepare your part-year return in TurboTax, you may be asked to allocate income to that state. This means you need to verify or enter the portion of income you received while you were a resident of that state. But how do you do that?
Let's start with unearned income, which is pretty straightforward. In contrast to earned income (see below), unearned income comes from non-employment sources, such as interest, dividends, capital gains, social security or IRA distributions, and so forth.
Simply allocate unearned income to the state you were a resident of when you received it. Here are some examples:
- You closed an interest-bearing account while living in California, so you should allocate the interest to California.
- You received 3 quarterly dividend payments while living in Arkansas, and the remaining payment while living in Oklahoma. You'll allocate 3 payments to Arkansas and 1 payment to Oklahoma.
- You made a modest profit from the sale of stocks right after you moved to Iowa. The gain from the stock sale is allocated to Iowa.
Allocating earned income
Earned income comes from employment sources, such as wages, salaries, tips, and commissions. (Think of it as money you work for, as opposed to unearned income (see above), which comes from money that works for you.)
Allocating earned income is easy if you stopped working for your former employer and started working for a new one when you moved. All you need to do is look at your W-2 or 1099 form. Your earnings from your old job are allocated to your old state, and your earnings from your new job are allocated to your new state.
However, if you continued working at the same job while residing in different states, things can get a little tricky. You'll need to estimate how much of the income you earned while you were a resident of one state versus the other. Here are some ways you can do that:
Method 1: Find an old paystub with a pay period ending around the time of your move. The YTD (Year-To-Date) amount on the paystub will show you how much income you earned while residing in your old state. This is the most accurate method if the income from that job fluctuated during the year.
Method 2: Estimate the number of weeks or months you worked at that job while you were a resident of one state and divide it by the total of weeks or months you worked at that job to come up with a factor. Then multiply the factor by the entire income from that job. Examples:
- If you worked at that job the entire year and moved in early May, you earned roughly 4 months' worth of income (1/3 or 33% of your total income) in your old state. Multiply the income from that job by .33 to obtain the allocation for your old state; the remainder is allocated to your new state.
- If you worked at that job for 39 weeks total (4 weeks while living in your old state) you'll divide 4 by 39 to come up with a factor of .1026. Then multiply the income from that job by .1026 and allocate that amount to your old state; the rest gets allocated to your new state.
Method 3: Use an Ordinal Date calendar where the days are numbered from 1 to 365 to obtain a more precise factor if you worked at that job for the entire year. Here's what you do:
- Find the Ordinal Date for your move.
For example, if you moved on August 7 in a non-leap year, the ordinal date is 219 because it's the 219th day of the year.
- Divide the ordinal date by 365 (366 in a leap year) to come up with a factor. In the August 7 example above, the factor is .6 (219 divided by 365).
- Multiply the factor by the total income for the year to figure the income allocation for the old state. The remainder of the income is allocated to the new state.