Question:
Pointers to appropriate publications appreciated. Browsing
the IRS web site didn't get me very far for some of my
questions and a posting to misc.taxes got lost in all of the
flame wars.
In January, I took a job in Illinois. I was paid a part of
my wages as per diem until the end of March, when renters
moved into my house in Michigan. At that point, I changed my
primary residence to Illinois and the per diem pay stopped.
The consulting firm paid for all of my moving expenses also
so there's no difficulty with that situation.
I just moved back into my house in Michigan after accepting
a new position there. Moving expenses were not paid by the
new employer so I planned to deduct the expenses from my
income taxes. Simple enough so far.
Now for the wrench in the works that I may have to
contemplate shortly.
I just had an interview last week in Ohio with a company I
talked to prior to the one I just started in Michigan. The
job is in Ohio, about 140 miles from my home in Michigan.
That's the complication from a tax stand-point if the second
interview goes well and they offer me a permanent position.
Here are my questions:
1. During the time that I would be living in Ohio for the
job and still maintaining the house in Michigan as my
primary residence, is rent and/or utilities for the
secondary residence near the job deductible as an
unreimbursed employee business expense if a per diem
arrangement is not extended by the company? If so, is there
any time limit on how long this can be done (or how long a
per diem arrangement can be extended for that matter)?
2. I found IRS references about a 39 week time frame for
working at a new job for the moving expenses to be
deductible. If the situation plays out favorably and I take
the job in Ohio, I will not meet that requirement for moving
back to Michigan. I'd just be out of luck on claiming any of
the deduction, right?
3. Since I had to break a lease in Illinois to move back to
Michigan, is the "buy-out" amount I paid deductible? I know
it can't be deducted as a moving expense, but could it
qualify as some other deduction?
4. How do the income taxes between states work in these
situations? While I was working in Illinois and had my
residence reported in Michigan, the Illinois company
withheld Michigan taxes so I'm guessing that whatever you
report on your W-2 is what's withheld and paid to the
appropriate state. (So if someone reports Michigan as their
residence and works in Ohio, they only pay Michigan state
income taxes?)
5. Do unreimbursed travel expenses for interviews qualify
for deduction?
Answer:
-Job search expenses may be
deductible as an itemized deduction on Schedule A (Form
1040) "Itemized Deductions".
If you work in one state, and live in another, unless there
is a reciprocal agreement, you must file in both states.
Your home state will allow a credit for any taxes you've
paid to other states.
Some of the ways for which expenses for travel away from
home would be allowed could be, partly as a job search
expense or if you are employed in one state and are
temporarily assigned a duty in another area, for a period of
less than one year.
On a temporary assignment, you may be entitled to deduct all
of your unreimbursed travel expenses as employee business
expenses on Form 2106.
-I'm going to let others address your expense deduction
questions, and just address the state income tax
implications of your situation.
Michigan has reciprocal agreements with both Illinois and
Ohio. If you live in Michigan and work in either of those
states, you will owe income taxes only to Michigan on your
earnings. Similarly, an Illinois or Ohio resident who works
in Michigan pays taxes only in his state of residence.
If there were no such agreements, then you would be taxable
in both your state of residence and the state where you
work. Generally, the residence state would give you credit
for the tax you paid to the state where you worked. In that
situation, the residence state in effect cedes the tax to
the source state. In a reciprocal arrangment, the source
state cedes the tax to the residence state.
