My husband is a self-employed Management Consultant (sole proprietor, LLC) residing in Maryland. We file our federal income taxes as MFJ. In 2012, he provided consulting services to companies in NJ and PA. Approximately 75% of the work was performed from his Maryland office, and 25% was performed at the clients' location. Neither of the clients' 1099-MISC forms have entries in boxes 16-18 (State tax withheld, State/Payer's state no., State income). 1. How much, if any, of the income must be reported to NJ and PA? 2. If he has to file in NJ and/or PA, does he file as MFJ or MFS?

ANSWER

The BIDaWIZ Team's Answer:

State tax law (not federal) dictates the tax treatment in these instances. As such, there is relief for Pennsylvania state tax reporting since there is a reciprocal agreement in place for residents of Maryland that work in Pennsylvania. The employer is not required to withhold Pennsylvania state taxes and an exemption form Rev-420 should be filed to enforce the exemption. If your husband performed services at the client site in New Jersey, then he is required to file a NJ state tax return as their is tax nexus and there is no reciprocal agreement in place. While the 1099 issuer didn't withhold state taxes or even list it on the 1099, it is still the obligation of the taxpayer to report the income to those states. Contractor withholding requirements are specifically detailed in the NJ state tax notices. He would also file as married filing jointly.