Many tax preparers find themselves completing the federal tax return and one state return for their clients. Usually, that sole state return is in your home state, and you are familiar with all the ins and outs of its preparation. However, situations arise when your clients have lived, worked or earned income in another state. In these situations, Intuit® ProConnect™ ProSeries® makes it easy to prepare a multi-state return, while ensuring clients are getting the appropriate credits and making use of any reciprocal agreements between the states.
Nonresident of a State
Typically, nonresidents reside in another state, but earn income in the nonresident state. While you should not complete state-specific input until completing the federal return, you can establish a state(s) as nonresident states within the Federal Information Worksheet. Scroll to Part XI – “Part-Year and Nonresident State Return Filing Information Only.” In this section, designate which state was the state of residence at the end of the tax year and mark the box labeled Nonresident State Filers. Enter the state(s) that are the nonresident states in the table below that box, and select Nonresident as the Residency Status. Now, you can complete the federal return.
Tip: If you have added too many states, selecting “File,” and then “Remove State/City,” will allow you to remove a state.
Part-Year Resident of a State
Part-year residents are residents of a state for only part of the year, and often are part-year residents of two or more states. The definition of a part-year resident depends on the state, so you may need to ensure that your client meets a specific state’s criteria.
We will begin very similar to how the nonresident return was started above. Head to the Federal Information Worksheet, Part XI, and indicate which state was the residence state as of the end of the tax year. However, you’ll now need to check the box underneath that designates the taxpayer was a part-year resident of that state. Make sure to enter the date the taxpayer established residency in that state and select the former state of residence.
If the taxpayer also needs to file nonresident state returns, don’t forget to check the “Nonresident State Filers” box. Add all of the part-year and nonresident states in the table, and select the appropriate residency status. You’ll also need to enter the dates of residency for the taxpayer and spouse (if different).
Now that you have established which states are either part-year or nonresident states, check that the state specific information worksheet correctly reflects the taxpayer’s residency. Do this by clicking on the “ST” button in the toolbar and selecting the applicable state from the dropdown bar. Find the section for residency status or main form, and confirm that the correct status/form is selected for that state.
Once you are sure your state information worksheets look correct and Part XI of the Federal Information Worksheet is complete, take a closer look at the state allocation worksheets. Head back to the Federal Information Worksheet, Part XI. There are two QuickZoom buttons toward the bottom of Part XI that will take you to either the Part-Year Resident or Nonresident State Allocation Worksheets. Remember to pause on completing these worksheets until the federal return is completed!
Tip: Remember that states tend to handle credits for taxes paid to other states differently. Some states even have reciprocal agreements that can exempt residents from liability or withholding in another state.
The Part-Year Resident State Allocation Worksheet is used to allocate certain income items and adjustments for each period the taxpayer was a resident of a particular state. The worksheet also allows you to enter the state source for amounts, especially when business or rental income originates in different states. The “source state” column is used when interest or dividend income relates to a particular business or trade.
The Nonresident State Allocation Worksheet allows you to allocate income items and adjustments to a single nonresident state. You will notice that there is a separate worksheet for each nonresident state you entered in Part XI.
This brief discussion of setting up a multi-state return in ProSeries should be a great foundation to start preparing returns that deal with numerous states and residency situations. With ProSeries at your fingertips, you can easily move past the borders and become a multi-state expert!