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Employer refuses to correct state tax withholding

Forum|Forum|3 years ago
April 4, 2023
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I was working remotely in IL and relocated to CA last year. My work location was not updated to IL until today due to an error. My paychecks have been withheld IL taxes the entire time. When I told my employer about this error, they refused to send me a corrected w2 and said I need to fix in in my personal return. How should I file my IL and CA tax now? Should I just tell CA all my income was sourced from IL or I didn't move until today? Will IL refuse to refund my withheld tax since my employer has already told them I've been working in IL even though I have not?

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Best answer by HelenC12

Believe it or not, your situation is common. Your employer can't "fix" your W-2. They only withheld IL state income tax and that is what the W-2 is reporting.

Yes, you'll have to do the correction on your state income tax returns.

No, don't say you all your income was sourced in IL.

You'll be able to allocate your income to each state. When you file your IL income tax return, you'll get a nice refund (IL will not refuse to refund your money). That refund will help pay for the CA income tax that you'll owe.

To file part year returns, please see How do I file a part-year state return?

To properly allocate your income to the correct state, please see How do I allocate (split) income for a part-year state return?

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HelenC12Answer

Believe it or not, your situation is common. Your employer can't "fix" your W-2. They only withheld IL state income tax and that is what the W-2 is reporting.

Yes, you'll have to do the correction on your state income tax returns.

No, don't say you all your income was sourced in IL.

You'll be able to allocate your income to each state. When you file your IL income tax return, you'll get a nice refund (IL will not refuse to refund your money). That refund will help pay for the CA income tax that you'll owe.

To file part year returns, please see How do I file a part-year state return?

To properly allocate your income to the correct state, please see How do I allocate (split) income for a part-year state return?

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coolbeanAuthor

Thanks for the reply! Without the w2 telling me how much was earned in which state, I can only estimate. Will both IL and CA just take my word for it or do I need to show proof of why I think this amount is considered sourced in CA?

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BillM223

"do I need to show proof of why I think this amount is considered sourced in CA?" No, you don't show proof with your return; however, you should keep in mind that someday someone may write you a letter asking you to justify your allocation. Therefore, it would be prudent to figure out how you are doing the allocation and write it down and stick it in your tax files, just in case someone asks. A good start is showing when you stopped working in Illinois and started working in California.

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