I made a lot of mistakes with taxes this year, so just in case you’re as unaware as I am: you don’t pay taxes in more than 1 state.
I was very confused about this. See, my job is in one state, but I’ve been in North Carolina because of the pandemic.
This happened to me once before: I was working (and living) in Maryland. I thought that was simple enough. I wasn’t living in NC at all, so I didn’t even file a tax return here. But a few years later, I got angry letters from the North Carolina tax office. It was because my car had still been registered in NC while I lived in Maryland (at least at first!) So they thought I’d been living here and were demanding several thousand in unpaid taxes (plus interest).
But I just had to fill out some forms showing I’d paid taxes in Maryland, and all was forgiven.
And that all made sense, because of course, I was actually living in Maryland all that time, why would I pay NC taxes?
But then this year, I thought: well, I have been living in NC, practically the whole year. So obviously, I’ve been benefiting from NC services and the NC life, obviously I must owe taxes here even though no NC taxes had been withheld, given that I was getting my paycheck from another state.
And indeed, I did my tax forms, and yes, I had to pay a whole bunch of taxes to NC, on top of the taxes taken out by the state where the job is. I didn’t mind paying the taxes to NC; but it felt a little unfair that the state with the job, where I hadn’t even stepped foot, was grabbing their fill.
See, I had even read the instructions, and the instructions said: even if you don’t live in the state, you must still pay taxes on income received from the state. So that seemed to be the law.
I believe in stoicism when it comes to these matters, so I wasn’t going to complain; but then I mentioned it outloud, just as a sort of a joke, oh, look, I have to pay all this extra money to North Carolina now …
And the person I was with said, no you don’t! You don’t pay taxes in two different states.
And I actually argued with them: yes, I do have to, I read all about it, I’m sure, and besides, how can I not pay taxes in North Carolina when I’ve been living here this whole time?
And they said, noooo, you don’t, check again.
So I did check again, and I found the special North Carolina tax form where you list how much taxes you already paid in a different state, and then claim that as a credit, thereby lowering the amount you also need to pay to North Carolina. Well, it lowered the amount I needed to pay by 80%. So I celebrated after that, I was pretty pleased.
I still needed to pay NC a bit more tax; and I even needed to pay more tax to the state with the job, which I didn’t understand — why hadn’t they withheld enough tax from each paycheck in the first place, and for crying out loud, I hadn’t even been there the whole year, and yet they want more taxes? But the amounts were so low compared to what I’d thought I needed to pay originally, I didn’t linger over that.
But I still thought, well, poor North Carolina, I lived here all this time, and they just got a few paltry sums from me?
My friend said: don’t worry, they’ll go nab all the taxes from the state with the job where you didn’t even set foot, they’ll make them hand it over.
Then, my my mood both improved by this turn of events, and my tax-form-filling confidence way diminished, it occurred to me that maybe I had after all made some other mistakes in the forms. After all, why did the state where I hadn’t ever been want more taxes from me? I decided to see if I could crunch all my numbers through one of those tax-filing online accounts, just to see if they got to the same results I had. Just to double-check. I figured the software would make me pay at some point, so I planned to just use it as far as I could. I had used HR Block in the past, so that’s the one I went back to.
And while I was entering in all the information for the W2 forms, I noticed something very interesting. The state listed on my W2 form was not the state where the job is located. The state was North Carolina. It took me a while to fully understand what was going on, but according to HR Block, I didn’t owe any taxes at all to the state with the job (and I’d been planning to send them a check for more!) More than that, I hadn’t been paying taxes to that state this whole time, as I’d fondly believed. Instead, apparently I’ve been paying taxes to North Carolina all along. I guess my job set this up to make it easier for me, to save me from filing with multiple states and doing all the math myself (which I did anyways, until HR Block set me straight.)
And not just that, but North Carolina owes me a refund — whereas I had been getting ready to send both NC and the state with the job a check.
And the kicker is, after I figured all that out, HR Block let me file for free after all — even though they’re not even listed on the IRS website as being a freefile partner this year. Maybe there was just a bug in the system that let me through!
So I filled out a whole bunch of forms for nothing — well, not for nothing. I learned some about tax law along the way. Just what I always wanted. So this was great.
Another thing I found out I was doing wrong (and apparently have been paying extra tax on for years): North Carolina does not take out state taxes on interest you’re earning in the bank. Remember how NC sent me a letter saying, hey, you should have been paying taxes while you lived in Maryland, you owe us? Well, then never ever have sent me a letter saying, hey, you shouldn’t have paid us taxes on the bank interest, here’s some money back.
I wonder … I just wonder … if North Carolina would have said anything if I’d done and sent them an extra check, when hopefully their own tax paraphernalia and devices should — at least one hopes — register that they owe me a refund. I just wonder.
And I wonder what the state with the job would have said if I had after all went and sent them a tax return with a check attached. Would it have registered with them, no, you don’t owe us any taxes at all? Or would they have pocketed the money, no questions asked?
Any case, I am very much in favor of fair taxes that fully fund schools, healthcare, and people living in poverty, so this is not a complaint about any of that. It’s just in case anyone else is about to try to pay the same amount of taxes in one state as they do in the other.