18 Nov I got notice that I owe $7K in taxes. What do I do?
Q. I live in New Jersey but work in New York. It seems that I owe income taxes paid to New York. I just received an invoice for tax year 2019 for over $7,000 that I owe. I am very confused and trying to figure it out. I do my taxes on TurboTax each year and have never had an issue. But now it’s concerning that this is coming from 2019. How do I know if I’ve paid these and that I won’t be double taxed? It mentions that I need to pay by or they will take further action — deduction of back tax amounts, referral to collections, or impose an 11% recovery fee. I don’t know what to do.
A. Getting a note that says you underpaid a tax bill can certainly be unnerving.
Let’s go over your responsibilities.
If you work in a state other than the state in which you live, you must file a non-resident income tax returns and pay taxes on the income earned in the other state, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
This assumes the other state has an income tax, he said.
Normally, your employer will withhold state income tax for the state where you work, Kiely said. At year-end, your employer would issue you a W-2 form showing how much you earned in the other state and how much tax was withheld for that state, he said.
Your employer would also file a copy of the W-2 form with the other state.
Kiely said you must declare the same income on your home state income tax return. Your home state would grant you a credit for the taxes you paid to the other state, so you won’t be paying tax twice on the same income, he said.
“In your case, your employer must have issued a New York W-2 form. This is what triggered New York’s notice,” he said. “You should have filed a New York Form IT-203 `Nonresident and Part-Year Resident Income Tax Return.’ You should have reported the income indicated on your W-2 form along with the New York tax that was withheld and reported on the W-2. This would result in a balance due or refund.”
When you filed your New Jersey NJ-1040 “Income Tax – Resident Return,” you should have reported all of your worldwide income, including the income reported to New York, Kiely said. This would result in your total New Jersey income tax.
Next, you should have filled out Schedule NJ-COJ “Credit for Income or Wage Taxes Paid to Other Jurisdiction,” he said This schedule calculates the credit New Jersey will allow for the taxes you paid to New York. This credit should have been included on line 42 of your 2019 NJ-1040 which would have reduced your total New Jersey tax, he said.
“I recommend you go back to your 2019 records and starting with your W-2, examine everything to see if your New York and New Jersey tax returns were prepared correctly and the proper taxes were paid,” Kiely said. “Also, since New York is looking for $7,000 from you, it may be worthwhile to hire a CPA for an hour or two to see if your taxes were filed correctly.”
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This story was originally published on Nov. 18, 2022.
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