[fortewu]

My wife is employed by her Texas company on a project in Denver, CO. Her company told her that since she works more than 173 hours in a secondary state (state different from where you reside), the company will need to do withholding for those taxes.

They currently reimburse by creating a line code SIT GROSS UP to reimburse for these taxes, but doesn't that increase the salary so that more taxes are withdrawn?

Also, at year end, do we file a Joint State Return for Colorado? What wage do I put down even though we are paid through her employer which is in Texas where there is no state tax?

[ebaines]

Hello fortewu. When the company calculates the gross up amount they should do it by dividing her anticipated taxes on the CO wages by (1- tax rate). This way after taxes on the gross up she nets out her original pay. For example - suppose the tax rate is 10% (it's not, but this makes the math easy) - then the gross up amount is her normal pay times (0.1/0.9). Thus for every $100 she earns they would gross it up by 100*(.1/.9) = $11.11. The tax on the total income of $111.11 at 10% is $11.11, which nets her the original $100. Make sense?

At year's end you will file a joint income tax form with CO, as non-residents. On that form you will have to document your total income as a couple, and also the portion that is due to CO sources, and the amount of tax you owe is calculated as the CO source amount divided by the total income as a couple, times the tax that you would owe IF you lived in CO. This way you are taxed only on the CO source income, but at a tax rate that is determined by your total income.

The fact that the employer is head-quartered in TX is immateral - what matters is (a) where the employee lives, and (b) where the employee works.