Adventures in OMG are we going to have to pay huge amounts of taxes on our slightly under a year in paradise?

Back when we went to Paradise for my leave, we spent hours and hours researching the tax situation.  We read lots of stuff online.  We read articles published in tax journals available from the uni library.  We talked to friends and colleagues who had taken out-of-state leave recently, including one who had both gone to Paradise for leave and who had used a professional accountant.  We called up the tax board in Paradise and asked.

Everything was unanimous (well, except a couple of random internet Q/A things that didn’t really look legit)– if we lived there less than a year, kept our residence here, didn’t register to vote or get a driver’s license etc., then we would only have to pay taxes on income directly from places in Paradise.  We would be considered non-residents, and non-residents only have to pay taxes from Paradise-sources, not from, say, my University salary.

So, of course, the other day in the mail we got two scary tax documents from the Paradise tax board asking us for our 2015 Paradise state taxes.  Apparently the fact that we sent our federal taxes from a Paradise address meant that they expected us to file a return.

Which freaked us out, because our state taxes where we normally live are a pittance compared to state income taxes in Paradise.  We’re talking thousands of dollars if all of our income counted.

So we redid the internet searching and DH called the tax board in Paradise again.

Turns out we had a 1099 from an honorarium I got in Paradise, and although I normally don’t have to pay Paradise state-income taxes on honoraria from Paradise (which I tend to get once every few years), since I was living in Paradise at the time, I did need to pay state income taxes on that income.

So we just needed to file a non-resident tax form, which is a pain, but the only part we’re going to be taxed on is the honorarium plus a small penalty.

We’re talking maximum $100, not the thousands we’d been envisioning.


That was a bit terrifying there, but we can handle $100.

Update:  After about 6 hours of dealing with Paradise non-resident state tax forms, we ended up owing $46 plus $48 in late penalties and interest, for a total sum of $94.  So I guess the penalty wasn’t so small after all!

15 Responses to “Adventures in OMG are we going to have to pay huge amounts of taxes on our slightly under a year in paradise?”

  1. bogart Says:

    Yikes! Glad this turned out to be a manageable (and, I suppose, educational) error/piece of confusion and not a large and difficult-to-manage burden. Interesting about the size of the penalty. We just realized that we failed to renew the license plate on our camping trailer before it expired (which is OK, in the sense that it has been parked, it’s not on the roads…), so we’re going to learn what if any complications/costs that creates in our state.

    • nicoleandmaggie Says:

      When we’ve forgotten to renew something like that, there’s generally been no penalty if we discover the mistake ourselves. It’s only when we get caught and ticketed… But that must vary by state.

      • bogart Says:

        Yeah — I think you’re probably right. We haven’t actually done anything wrong, since, as I say, it’s been parked. So probably no harm done.

  2. Leigh Says:

    That’s a huge penalty in terms of that it turned out to be 104% of what you owed. But I’m so glad you didn’t turn out to owe thousands! That was something I was really careful about when I first moved to my current city because if I had been lax in declaring residency, I would have ended up owing another $10,000 in taxes. Moving here such that I was here for more than half the year was really helpful towards that.

    • nicoleandmaggie Says:

      I didn’t do the tax stuff, but I imagine that a flat fee is taking up the bulk of this penalty. IIRC from when DH and I talked about this before-hand, they most they could do as penalty percentage wise was more like 15% (or maybe it was 10%, I forget).

  3. Cloud Says:

    The year I moved from CA to NJ (after grad school) just about killed me in terms of figuring out my taxes. So when I moved back, and again had partial year residence in two fairly high tax states I decided to hire an accountant to figure that headache out for me. I don’t begrudge paying my taxes AT ALL, not even in my high tax state. But I begrudge the headache of figuring out how much I owe. As our finances get more complicated, this just gets worse. This year’s tax related panic attack was caused by confusion about a retirement account I opened for myself as a business owner. I put it in the wrong place on the form my accountant uses to gather info from us and almost had a multi-thousand dollar mistake.

    • nicoleandmaggie Says:

      Yeah, the tax forms themselves are the worst. If we could have paid the money+ penalty without spending 6 hours on forms, it would have been better– I wonder if I would have accepted that honorarium knowing what I do now. We had a similar situation one year when we were doing part-year in another state and DH was working for a small start-up… he ended up doing all the taxes himself without software because he decided it wasn’t any more work than figuring out what we would need to take to an accountant. (And the without software part was because software at that time couldn’t handle our specific situation.) This time was much easier!

      Did the accountant catch the mistake?

      • Cloud Says:

        Not really, but they way he handled the retirement savings raised a question and when I followed that up with Vanguard we were eventually able to figure out what happened. I may have outgrown my accountant in terms of the complexity of my finances. Sigh.

      • nicoleandmaggie Says:

        Ugh, yeah, that’s kind of how we feel about accountants– if it’s simple, our tax software can handle it. If it’s complex then we have to explain everything to the accountant, and by the time DH figures it out we no longer need an accountant. I guess we’re not wealthy enough to be able to afford the accountants who handle (or create!) more complex situations.

  4. Revanche @ A Gai Shan Life Says:

    That’s a pretty stiff penalty considering it’s more than the taxes that you owed! But I’m so glad that the total was still under $100. I’d have been shaking in my boots trying to untangle that. CA tax law stinks to untangle and I’m assuming that’s the case for most states that collect income tax.

  5. chacha1 Says:

    Wow, that’s not the kind of adrenaline rush anybody wants! Glad it was resolved.

    An acquaintance in Sweden says her tax is figured based on reports from her employer; she receives an email from the state saying “this is your tax, agree/disagree” and once she clicks OK she’s done.

  6. Omdg Says:

    That penalty borders on usury! Go figure that’s what the government does when you make a small mistake. If only it worked the other way too. 😝

  7. Ask the grumpies: More sabbatical/faculty development leave questions | Grumpy Rumblings (of the formerly untenured) Says:

    […] able to only pay new state taxes on the sabbatical employer stuff.  You will have to pay taxes on any income you earn from employers in the new state even if not from your sabbatical employer.  This is going to vary though.  It helps if you stay […]

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