This is going to sound like a really ignorant question, but I have so many facts and figures in my head that I’m not thinking straight! I live in Columbus Ohio and have the opportunity to work in New York City for four months and was told by a tax accountant that I should expect my tax burden to increase by 5% living in that city for that period of time. Would my federal taxes also increase by 5%? Or just my state and local taxes? My mind has blanked on this…
Federal taxes should be unaffected. The extra tax will be New York State and New York City income tax.
An increase in state taxes should either cause no change to federal tax liability, or cause it to go down, depending on whether you itemize and claim state income tax as part of that itemization, or not.
And while we’re talking about increases to itemized deductions - don’t forget that travel and living expenses at a temporary work location are generally deductible as unreimbursed employee expenses (form 2106, with the result on Sch A).
I just did this. Only state taxes were affected.
Yep - unless your tenure there exceeds 11 months (I think that’s the time).
The catch is (from bankrate.com): “The only problem is that these deductions don’t do you any good until they come to more than 2 percent of your adjusted gross income, or AGI. That means a worker with an AGI of $30,000 must have expenses of more than $600 before the expenses are deductible.”
For what it’s worth, it’s possible that your employer will simply reimburse you for your living expenses and that won’t go through your income at all. That’s the way my employer always worked (and like the OP, I was on a temporary assignment in NYC).
It’s a pain, really. You have to file NYC income taxes, NY State income taxes (both for only the income you earned in the city). Then you file taxes in your home state for all your income, and claim a credit for money paid to NYC/NYState - but only up to the amount you’d have paid your home state.
So if you earn 100,000 in New York and 200,000 in your home state, your income is 300,000. You pay 10,000 to New York (10% of 100,000). Your home-state income tax would be 5% of 300,000, or 15,000.
5% of that 100,000 would be 5,000. That’s the credit you can take against your home state’s taxes. So you pay them 15,000 - 5,000. or 10,000. And you pay New York 10,000. Your net tax then is 20,000.