State income tax withholding

[Richard L]

To add to the confusion, States vary on refunding non-resident income taxes withheld. Some have Reciprocal states and some don't....California will not refund any income taxes withheld by the District of Columbia, but will for other states?



Here is a statement made by a Tax CPA that give a basic description of how the non-resident state income tax refund works:

Answer from AICPA member Robert M. Baldwin: This is not a question which has a simple answer. Each state has its own laws about how they compute their income taxes. Some compute income taxes based on the Federal tax rules and others have their own set of calculations.



Your state of residency will normally tax all the income from each state in which you worked. This is called personal service income.



Each state where you worked and did not live will look for a non-resident state income tax return (unless of course that state does not have an income tax like Florida).



The state in which you are a resident will normally tax you on all your personal service income and then give you a credit for taxes paid to other states.



Generally the credit for taxes paid to other states will not exceed the lesser of the taxes paid to the other state or the amount of resident state tax on the other state's income. Remember, a state tax credit is a dollar for dollar reduction to the state taxes owed.



One other observation, states generally do not allow you to itemize and deduct state income taxes paid to other states. Conversely, they do not tax you on state income tax refunds either."

...Rich