Out of State Income For College Student

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  • #2027
    Geraldson
    Participant

    How do I handle this? My son is a 24 year old full-time graduate student at a university in North Carolina. His legal residence is with me, in Pennsylvania. Last summer the university paid him a stipend to do volunteer work that they approved for his studies. They withheld North Carolina income tax. My son has no other earned income, but does have somewhat significant interest and dividend income. I prepare his tax returns. I assume that the NC income will be taxed to NC and the rest of his income will be taxed as PA. But I’m not sure. Please advise. Thank you.

    #2028
    kaneohe
    Participant

    There may be some state specific rules so you may want to check NC non-resident rules and PA rules for other state taxation. In my situation the other state taxes the locally generated income (a rental) and my state taxes everything , then gives me a credit for other state income tax (the lesser of the other state tax on that income and the home state tax on the same income). ……to me it is similar to how the foreign tax credit works.

    #2044
    Kaye Thomas
    Moderator

    First be clear as to whether your son is considered a resident of NC for tax purposes. Your notion of “legal residence” isn’t necessarily controlling. From a quick look at the last year’s instructions for NC Form D-400, which appears to be the latest available as of this posting, it sounds like you’re okay if he maintains a home elsewhere and is in NC only for school (and hasn’t claimed resident status for tuition purposes). If you’re using “legal residence” to mean nothing more than a place where he receives important mail, that’s another story.

    If he’s a nonresident of NC, then kaneohe gave the right info. Prepare the NC tax return first, with careful attention to how that goes for nonresidents. The investment income shouldn’t be taxable on that return, but it may have to be included on the return to determine the tax rate that applies to the earned income.

    If NC can claim him as a resident for tax purposes, then they’ll tax his investment income also. Because states use different criteria for determining whether you’re a resident for tax purposes, you would still have to make sure he isn’t also considered a resident of PA.

    #2049
    Geraldson
    Participant

    Thank you for the response. He does NOT claim “in-state” residence for tuition purposes, so I think what you posted just above sounds correct. Thank you!

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