[creahands]

I work in the state of Ct. and live in NY.

Received interest from U.S. bonds cashed in and deposited in my NY bank. Does Ct. have the right to tax this as part of my gross income? NY has already taken out as part of their tax.

Thanks for any info u can give me.

Chuck

[AtlantaTaxExpert]

Connecticut has NO legal standing to tax the interest itself, so make sure NOT to report that interest as Connecticut income.

However, Connecticut CAN and DOES use interest and income from sources OUTSIDE of Connecticut to determine the tax RATE that you will pay on the Connecticut-sourced income.

Example: Let's assume you work in Connecticut and earned $9,000. However, you do speculative options trading while living in New York. You made some shrewd trades (or got wildly lucky) and earned $2 MILLION while options trading. The $9,000 would normally be taxed at 3%, but because of the extra $2M in NY-sourced income, Connecticut can legally tax your 9,000 at the maximum tax rate of 6.5%.

BTW, this practice HAS been challenged in tax court numerous times, with the state in question winning EVERY time. It may not be fair (in your opinion), but it IS legal.

[creahands]

Thanks for answer. Had to change to way I was writing the returns. Had to do NY first after the fed return. Again thanks.

Chuck

[ebaines]

You should complete your federal return first, the CT return second, and the NY State return third. That's because you take a credit on your NY taxes for "taxes paid to other jurisdictions," namely CT, so you must have the CT return completed before your home state's tax return. This credit makes it so you don't pay two states tax on the same income (except to the extent that NY's tax rate may exceed CT's).

[creahands]

Thank u. I wrote it backwards. Did it the way u said. Thanks again.

Chuck