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I live In Massachusetts, and worked in New Hampshire for 6

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I live In Massachusetts, and worked in New Hampshire for 6 months and in Mass for 4 months in 2006. I had to amend my tax returns for that year to remove a dependent that I had claimed. This was done with the help of H&R Block, and everything went well. I paid the additional tax that was due for Massachusetts (both fed and State.)
Now the Mass Dept. of Revenue has audited and reassessed my tax return for that year and states that I owe an additional tax on wages earned. This is due to a difference between the total taxable wages made for Mass, and NH, for that year. New hampshire doesn't have a personal income tax, why would I have to pay a tax on the income made in New Hampshire.
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.

Hello Customer,

 

The way state tax works is this. You are basically responsible for state taxes in the following states:

 

1. Any state where you have earned income and

2. Your resident state

 

If the state you work in is different than your resident state, then you pay taxes to that state on the income you had from within that state. You still must report that same income to your resident state, but then your resident state allows you a credit for any tax you already paid to the other state where you worked. This prevents double taxation of the same income at the state level.

 

In your particular case since you worked in a state which has no income tax, then you paid no tax to NH and so there would be no credit for you to apply on your MA resident return. But you must still report the income to your resident state. Had you worked in a state that did impose tax, then MA would have given you a credit for the tax paid to that state, but since you did not work in a state that imposes tax, you still must pay state tax to the state where you are a resident.

 

If H&R Block are the ones who originally filed your returns for you, they should have been very well aware of these requirements. That being the case, I would certainly approach them to reimburse you for any penalties or interest that you may be responsible for at this time.

 

 

Thank you Customer

 

 

Customer: replied 5 years ago.
So I will have to pay the additional tax due in Mass.
Expert:  Merlo replied 5 years ago.

Hello again Customer,

 

Yes, you will owe tax in your resident state of MA on the income you earned in NH.

 

The only time that you benefit from working in a state that has no income tax is if you also live in that state. Otherwise you still pay tax to your resident state on that income.

 

But again, even though you are definitely responsible for the tax owed to MA, if H&R Block is the one who originally filed your return in this manner, then I would certainly approach them about any additional penalties or interest that you are also being asked to pay, as this is something they should have been well aware of when they filed your returns.

 

 

Thank you Customer

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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Merlo
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25+ years tax consulting. Specializing in returns for US citizens living abroad