You and your spouse will probably have to file separate returns, but New York does give you the option of filing a joint return – as long as you let it tax all your money
The following is a slightly modified question from one of our readers:
My wife lived and worked in New York City for all of 2012. I lived and worked in Maryland for one month and then lived and worked in NYC for eleven months. I have already filed in MD as a part-time resident. For New York State, though, I am a bit confused. I have filled out a resident return for my wife and a part-time resident return for myself (including a part-time NYC resident worksheet for myself). Do we file jointly as we did for our federal return or do we each file separately? Does this affect our standard deduction? It seems like the two forms we filled out (IT-201 and IT-203) should be filed separately.
This is precisely of the sort of question that boggles taxpayers across the country. State tax residency is such a popular topic on this blog precisely because it is so complicated.
Every taxpayer is responsible for filing a resident return in the state where they live, unless that state happens to be one of the nine that don’t have an income tax.
When you move from one state to another you need to file a part-year resident return in the state where you began the year, which will tax you on all of your income for the portion of the year that you were a resident of that state. Then you need to file a part-year resident return in the state you moved to, which will tax you on all of your income for the portion of the year that you were a resident of that state.
If you and your spouse move at separate times you may have to file separate part-year resident returns. You should note that even if you file a joint federal return, you can file separate state returns if you have to.
Take the question above. In this scenario the wife’s tax situation is fairly straightforward. She was a resident of New York for the entire year so she needs to file a NY resident return.
Because her husband moved from MD to NY during the year he needs to file a return in both MD and NY. First of all, he needs to file a MD part-year resident return that taxes him him on all of his income for the one month that he lived in MD. Simple enough.
But what happens in New York? Does he file jointly with his wife or does he file a separate return? The answer, in this case, is either.
Here’s what the New York State Department of Taxation and Finance has to say about it (you can find this and more NYS tax goodness in the instructions for Form IT-203):
If you are married and filing a joint federal income tax return but one spouse is a New York State resident and the other is a nonresident or part-year resident, you are required to file separate New York State returns. The resident must use Form IT-201, Resident Income Tax Return. The nonresident or part-year resident, if required to file a New York State return, must use Form IT-203. However, if you both choose to file a joint New York State return, use Form IT-201 and both spouses’ income will be taxed as full-year residents of New York State.
Basically he can choose between filing separately or filing a joint return.
The option that gets closest to his actual tax liability is filing a separate New York part-year resident return. Because he only lived in NY for eleven months, NYS only has the right to tax his income for those eleven months. Filing a part-year return does this.
However, New York also gives him the option of filing a joint return with his wife. In this case, however, he will be treated as a resident for the full twelve months of the year and his income will be taxed accordingly. This essentially means he will be over-taxed by NY.
Since he lived in NY for the vast majority of the year, this probably won’t make that much of a difference. But, for the sake of argument, if he had moved to New York in December, it probably wouldn’t make much sense to let New York tax all of his 2012 income as if he were a resident.
The upside to filing jointly is that it’s much more convenient and might actually end up lowering their tax preparation costs.
Many taxpayers who do decide to file separate state returns (after they filed a joint federal return) are at a loss for how to report their income or claim things like the standard deduction on their separate state returns. New York provides another helpful hint on that count:
If you file a joint federal return but must file a separate return for New York State, calculate the Federal amount column as if you had filed a separate federal return.
That means with respect to this taxpayer’s question about the standard deduction, he and his wife should each use the standard deduction for the married filing separately filing status which for 2012 amounts to $5,950 each.
And this is just one specific aspect of state taxes! They tend to be painfully complicated, which is why you could improve your life a great deal by using RapidTax and letting it take care of the state tax hassle for you.
Photo via Utenriksdepartementet UD on Flickr.
