Back taxes / Employer filed W2s in wrong states ... what would you do?

[aimeea]

So this is a confusing and incredibly weird situation.

In 2011, I worked as a remote employee for a company. I lived in South Carolina. About a month into the year, I notified my company that I was moving to Oregon and did a few days later, and worked from there for the rest of the year.

For some reason, in 2012, I filed a federal tax return but didn't file a state tax return in South Carolina or Oregon. Not sure why I didn't, almost certainly an oversight on my part because I'm usually very diligent about taxes, but that's my fault. I moved away from Oregon in 2012, haven't lived there since.

Fast forward to this month. I get an alert from my credit monitoring. A lien has been filed against me by the Department of Revenue in Oregon for $6900. They had been sending notices to my 4-year-old address in Oregon. Obviously, I didn't receive these letters. I call them to find out what the lien is based on and they tell me it's for $4200 of unpaid taxes, a 50% penalty, and then some interest that had accrued on that. They had filed a substitution return on my behalf based on my federal return.

I figured that I probably just needed to file an amended return and they'd see I had taxes withheld from my state wages and all would be fine--I'd owe maybe a few dollars and a penalty, but nothing huge. So I called my former employee from 2011 and asked for a copy of my W2. And this is where it all unravels and gets weird.

They filed 2 W2s, of course, for South Carolina (the state I lived in in January 2011) and another for Oregon (the state I lived in from February 2011 - December 2011) but the incomes reported to each state were completely wrong. They reported a majority of my income to South Carolina (like 10-11/12 of it) and then just a tiny amount to Oregon. I have no idea what happened.

So I called a CPA. And the CPA told me that in most states, the statute of limitations for tax amendments/refunds is 3 years--since it's 2016, I'm outside of the statute of limitations. The company that sent me the erroneous W2s is playing dumb and pretending they didn't make a mistake, but the e-mail they sent me in response to me questioning it is in conflict with what they sent (the HR person said "We have no record of you working in South Carolina in 2011", obviously not true if they filed a W2 with a majority of my income in that state!)

I have no idea what to do. Is this still something I can remedy? Should I just pay off the amount on the lien and call it a day and assume that since the state of SC has never contacted me, they probably are more than satisfied with whatever they got out of me? I'm really frustrated because obviously this resulted in a lien on my credit report (which was flawless before this) and although I'm definitely at fault for not filing state returns that year (and thus missing the error when it could still be corrected before tax deadlines), but my former employer is at fault as well for reporting wrong income to the wrong states :|

 

[AdjunctFL]

what would you do?

The first thing that you need to do is determine what your correct liability is in each state. For OR, if you had enough tax withheld, it may be substantially less than the $4,200 plus penalties. If so, follow their procedures to file a claim for abatement. An abatement is a reduction of unpaid taxes. Be prepared to support what income and withholding you had in that state.

For SC, if you only worked there one month, it's doubtful you would owe much, if any, tax to that state, especially if you had any amount of withholding. However, it wouldn't hurt to prepare by determining the amount now in the event you receive a notice from them later.

There is nothing your employer is likely to do for you. They paid the withholding over to the states and if too much, it would have been refunded to you if you filed a timely return. They can't get it back.

 

[LdiJ]

So this is a confusing and incredibly weird situation.

In 2011, I worked as a remote employee for a company. I lived in South Carolina. About a month into the year, I notified my company that I was moving to Oregon and did a few days later, and worked from there for the rest of the year.

For some reason, in 2012, I filed a federal tax return but didn't file a state tax return in South Carolina or Oregon. Not sure why I didn't, almost certainly an oversight on my part because I'm usually very diligent about taxes, but that's my fault. I moved away from Oregon in 2012, haven't lived there since.

Fast forward to this month. I get an alert from my credit monitoring. A lien has been filed against me by the Department of Revenue in Oregon for $6900. They had been sending notices to my 4-year-old address in Oregon. Obviously, I didn't receive these letters. I call them to find out what the lien is based on and they tell me it's for $4200 of unpaid taxes, a 50% penalty, and then some interest that had accrued on that. They had filed a substitution return on my behalf based on my federal return.

I figured that I probably just needed to file an amended return and they'd see I had taxes withheld from my state wages and all would be fine--I'd owe maybe a few dollars and a penalty, but nothing huge. So I called my former employee from 2011 and asked for a copy of my W2. And this is where it all unravels and gets weird.

They filed 2 W2s, of course, for South Carolina (the state I lived in in January 2011) and another for Oregon (the state I lived in from February 2011 - December 2011) but the incomes reported to each state were completely wrong. They reported a majority of my income to South Carolina (like 10-11/12 of it) and then just a tiny amount to Oregon. I have no idea what happened.

So I called a CPA. And the CPA told me that in most states, the statute of limitations for tax amendments/refunds is 3 years--since it's 2016, I'm outside of the statute of limitations. The company that sent me the erroneous W2s is playing dumb and pretending they didn't make a mistake, but the e-mail they sent me in response to me questioning it is in conflict with what they sent (the HR person said "We have no record of you working in South Carolina in 2011", obviously not true if they filed a W2 with a majority of my income in that state!)

I have no idea what to do. Is this still something I can remedy? Should I just pay off the amount on the lien and call it a day and assume that since the state of SC has never contacted me, they probably are more than satisfied with whatever they got out of me? I'm really frustrated because obviously this resulted in a lien on my credit report (which was flawless before this) and although I'm definitely at fault for not filing state returns that year (and thus missing the error when it could still be corrected before tax deadlines), but my former employer is at fault as well for reporting wrong income to the wrong states :|

Other than processing a return to make sure that the tax amount really was correct, and challenging them if it is not, there really isn't much else you can do. Had you filed the returns when they were originally due, you could have gotten the excess money back from South Carolina (it still would have been a bit of a fight) to help make up what you had to pay Oregon.

Its not that your employer did the W2 wrong, its that your employer did not change your withholding from SC to OR when they should have. Therefore they sent the money to SC and they cannot get it back now to send to OR.

 

[cbg]

And if the employer did not already have an employment nexus in Oregon, they had no obligation to create one just for you.

 

[LdiJ]

And if the employer did not already have an employment nexus in Oregon, they had no obligation to create one just for you.

However the employer should not have withheld and remitted tax to SC on income earned in OR, whether they already had a nexus or not. However that is really moot as they did credit some income to OR and did withhold some OR tax. That makes it clear that they just didn't do it when they were supposed to do it. Its not an unusual situation. It happens with distressing frequency in both large and small companies. Somebody drops the ball, and its often not discovered until its already complicated. Particularly in today's world of direct deposits and only online pay stubs.

The OP however is also at fault, because obviously the OP would have known that the wrong taxes were being withheld if the OP was regularly checking his pay stubs...and even without that it could have been resolved had he done his taxes in a timely manner.

 

[cbg]

I am asking, not arguing.

The employee picks up and moves to another state where there is no employment nexus. We agree that the employer is not required to create an employment nexus to accommodate the employee. Where should the employer submit the state taxes?

 

[LdiJ]

I am asking, not arguing.

The employee picks up and moves to another state where there is no employment nexus. We agree that the employer is not required to create an employment nexus to accommodate the employee. Where should the employer submit the state taxes?

The employer should not withhold ANY state tax if the employer cannot remit it to the correct state. However, there is also another school of thought that says that if an employer cannot remit tax to the correct state, that the employer should terminate the employee.

I have seen some real issues with US employers who send employees to work overseas for a year or more. Many of them insist upon withholding state tax when the employee would owe no tax to any US state. It causes major headaches. One of the biggest problem companies in that respect is a very large computer company, who should know better. What I have started telling employees in those situations to do is to claim residency with their employer in one of the US states that has no state income tax. Its stupid to have to do that, but if the company bureaucracy/software cannot handle a deviation for overseas employees then its about the only solution.

 

[cbg]

I ask because a great many years ago, I worked for an employer where we had to transfer employees frequently as different projects for different clients reached different stages. Now, in our case, we were required to set up an employment nexus each time we entered a new state, since it was at our behest that they were moving, and we'd start the process as soon as we knew we'd be entering a new state. However, our third party payroll company frequently would send the taxes to the wrong state because they would insist that every time we moved an employee, we had to "terminate" the employee and "rehire" them in order to move their tax information to the right state, and frequently we just couldn't get the paperwork done on time. This meant a whole new employee number and often the employee's pay would be wrong because of that. They miraculously came up with a new platform (which I had been begging for for months or years) that would allow us to simply transfer them without having to do all the termination and rehire paperwork again, only days after we fired them and hired a more reasonable company. There were were only three payrolls they did for us during my tenure there, that someone's pay was not wrong or taxes sent to the wrong state.

I shudder to think what we put those poor employees through while we fought with that payroll company. Another Damned Problem over and over again.

 

[LdiJ]

I ask because a great many years ago, I worked for an employer where we had to transfer employees frequently as different projects for different clients reached different stages. Now, in our case, we were required to set up an employment nexus each time we entered a new state, since it was at our behest that they were moving, and we'd start the process as soon as we knew we'd be entering a new state. However, our third party payroll company frequently would send the taxes to the wrong state because they would insist that every time we moved an employee, we had to "terminate" the employee and "rehire" them in order to move their tax information to the right state, and frequently we just couldn't get the paperwork done on time. This meant a whole new employee number and often the employee's pay would be wrong because of that. They miraculously came up with a new platform (which I had been begging for for months or years) that would allow us to simply transfer them without having to do all the termination and rehire paperwork again, only days after we fired them and hired a more reasonable company. There were were only three payrolls they did for us during my tenure there, that someone's pay was not wrong or taxes sent to the wrong state.

I shudder to think what we put those poor employees through while we fought with that payroll company. Another Damned Problem over and over again.

Yeah, that was just a payroll company with really rotten software...or really dumb policies.

 

[cbg]

Dumb policies. It was pretty clear that we could have been on the other platform all along - they just didn't want to change us for some reason. I don't know if it was our size or money or what, but I don't believe for one moment that the new platform just "happened" to be developed the exact same week we told them to take their requirements and put them somewhere impolite.

It's long, long ago (the projects our boys and girls were working on were Y2K based) but I was curious. Thanks, L.

 

[davew128]

The CPA who previously gave advice on this should be prevented from preparing tax returns. He was wrong. The SOL doesn't have anything to do with reducing tax.

OP, file a return for OR showing the correct amount of income earned there with whatever withholding you had, and then be prepared to pay up. This ISN'T some tremendous nightmare of bureaucracy.

 

[LdiJ]

The CPA who previously gave advice on this should be prevented from preparing tax returns. He was wrong. The SOL doesn't have anything to do with reducing tax.

OP, file a return for OR showing the correct amount of income earned there with whatever withholding you had, and then be prepared to pay up. This ISN'T some tremendous nightmare of bureaucracy.

Dave...the deadline to file for a refund matters in getting the inaccurate withholding back from South Carolina. Its simply too late to get that back. Everybody agrees that he needs to file a return for OR with the correct information and pay up.

 

[davew128]

Dave...the deadline to file for a refund matters in getting the inaccurate withholding back from South Carolina. Its simply too late to get that back.

Nobody ever established that there even IS a refund that should have been due from South Carolina.

 

[justalayman]

However, there is also another school of thought that says that if an employer cannot remit tax to the correct state, that the employer should terminate the employee.

.

that is absolutely absurd and there is no reason to even consider such a ridiculous action

 

[LdiJ]

Nobody ever established that there even IS a refund that should have been due from South Carolina.

Huh? He lived in SC for one month and OR for 11 months. They withheld SC tax for 11 months and OR tax for one month. How could there not have been an SC refund if he had filed the returns in a timely manner? That has been the subject of this entire thread.