Maine Revenue Services: Income/Estate Tax - Guidance Document

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INDIVIDUAL INCOME TAX

Schedule NR

Worksheet A

Worksheet B

for Part-Year Resident/Nonresidents/"Safe Harbor" Residents

GUIDANCE DOCUMENT

Maine Revenue Services, Income/Estate Tax Division

Rev. December, 2012

SCHEDULE NR
PART-YEAR RESIDENTS, NONRESIDENTS and "SAFE HARBOR RESIDENTS" ONLY

If you are a part-year resident of Maine and received income during that part of the year you were a resident of Maine, or, during any period of nonresidency, had income from Maine sources resulting in a Maine income tax liability, you must file Maine Form 1040ME.

NOTE: A nonresident individual working in Maine as an employee is not required to pay a Maine tax or file a Maine return on income from personal services unless that individual works in Maine for more than 12 days or, having worked in Maine for more than 12 days, earns or derives income from all Maine sources totaling more than $3,000. Up to 24 days performing certain personal services, such as training and site inspections, are not counted against the 12-day threshold. Also, generally, a nonresident individual present in Maine for business for no more than 12 days and earning no more than $3,000 from business activity in Maine is not required to pay a Maine tax or file a Maine return on that income. See 36 M.R.S.A. § 5142(8-B) and Rule 806.

For more information regarding residency status, please refer to the “Guidance to Residency Status” brochure and the “Guidance to Residency Safe Harbors” brochure which can be downloaded at www.maine.gov/revenue/incomeestate/guidance/.

Part-year residents, nonresidents and “safe harbor” residents who receive income from outside Maine during the period of nonresidence may be able to claim a nonresident credit. This credit is calculated on Schedule NR using Worksheet A, Worksheet B and, if necessary, Worksheet C. Full year residents of Maine may not claim a nonresident credit and should not complete Schedule NR. Do not file Schedule NR if all your income is taxable by Maine.

Part-year residents, nonresidents and “safe harbor” residents must include a complete copy of their federal return (including all schedules and worksheets) with the Maine return, even if they are not eligible to claim a nonresident credit.

Part-year residents, nonresidents and “safe harbor” residents must file a Maine return using the same filing status as properly used on the federal return and must complete Form 1040ME and Schedule NR (if not all income is taxable to Maine). However, if one spouse is a full-year Maine resident and the other spouse is not, and a joint federal return was filed, you have two options:

1) You can choose to file a joint Maine return as if both were full-year Maine residents (you may qualify for the Credit for Income Tax Paid to Other Jurisdictions.); or

2) Each can file a Maine return as a single individual using Form 1040ME with Schedule NRH (for more information, see Schedule NRH). Each return must show the proper residency status (if the nonresident, or “safe harbor” resident, spouse has no Maine-source income, that spouse does not have to file a Maine Return). You may choose this option only if you filed a joint federal return. NOTE: If one spouse is a full-year Maine resident and the other spouse is a nonresident, the Maine resident spouse must file as a single individual using Schedule NRH. See page 5 of the Instructional Pamphlet for Schedule NRH at www.maine.gov/forms for additional instructions.

If both spouses are nonresidents or “safe harbor” residents, and a joint federal return was filed, but only one spouse has Maine-source income, you have two options:

1) You can choose to file a joint Maine return and determine your joint tax liability as nonresidents using Form 1040ME with Schedule NR; OR

2) The spouse who has Maine-source income can choose to file a return as a single individual using Form 1040ME with Schedule NRH (for more information, see Schedule NRH).

Maine taxable income is the federal adjusted gross income adjusted by Maine modifications, exemptions and deductions. Your tax is first calculated as if you were a resident of Maine for the entire year. Part-year residents, nonresidents and “safe harbor” residents must then claim a credit (calculated on Schedule NR using Worksheets A and B, and if necessary, Worksheet C) based on the income that was earned outside Maine while a nonresident of Maine. (NOTE: Nonresident or “safe harbor” resident servicemembers, see page below for special instructions.)

Do not begin the Maine return with only the income earned in Maine.
Unless specifically instructed, do not subtract the income earned outside Maine as a negative income modification on Maine Schedule 1.

Schedule NR is designed to separate a part-year resident’s, nonresident’s or “safe harbor” resident’s income between Maine source income and non-Maine source income.

Maine-source income includes the following:

1) All income received while a resident of Maine;

2) Salaries and wages earned working in Maine, including any taxable benefits related to those earnings, such as annual and sick leave. Except, you may not be required to file if the number of days worked in Maine as an employee is 12 or less or, having worked in Maine more than 12 days, your income from all Maine sources is $3,000 or less (see page 2);

3) Income derived from or connected with the carrying on of a trade or business within Maine (including distributive share of income (loss) from partnerships and S corporations operating in Maine). Except, a nonresident individual who is present for business in Maine on a temporary basis is not required to file if the individual is present for business in Maine for no more than 12 days or, if present for business in Maine for more than 12 days, earns or derives no more than $3,000 during the tax year from contractual or sales-related activities in Maine. See 36 M.R.S.A. § 5142(8-B) and Rule 806;

4) Shares of trust and estate income derived from Maine sources;

5) Income (loss) attributed to the ownership or disposition of real or tangible personal property in Maine;

6) Maine-source gain (or loss) from sale of a partnership interest. NOTE: To determine the gain or loss from the sale of a partnership interest attributable to Maine, divide the original cost of all tangible property of the partnership located in Maine by tangible property everywhere. Tangible property includes real estate, inventory and equipment. If you don’t know these amounts, contact the partnership. If more than 50% of the partnership’s assets consist of intangibles, the gain (or loss) is allocated to Maine based on the sales factor of the partnership. Divide the sales in Maine for the last full tax year of the partnership preceding the year of sale by the total sales for that same year. Multiply the result by the gain or loss on the sale of the partnership interest reported on your federal return. “Sales” for purposes of computing the sales factor are defined in Rule No. 801(.06). Include the gain (or loss) from the sales of a partnership interest on Worksheet B, Column E, line 6; and

7) Maine State Lottery or Tri-State Lottery winnings from tickets purchased within Maine on or after July 13, 1993, including payments received from third parties for the transfer of rights to future proceeds related to Maine State Lottery or Tri-state Lotto tickets purchased in Maine, plus all other income from gambling activity conducted in Maine on or after June 29, 2005.

Except for Item #6 above, income from intangible sources, such as interest, dividends, annuities, most pensions and gains or losses attributable to intangible personal property, received by a nonresident of Maine is not Maine-source income unless it is attributable to a business, trade, profession or occupation carried on in Maine.

Also, Maine source income does not include compensation for services performed in Maine by a nonresident individual who is an employee of a political subdivision (e.g., a county or municipality) of an adjoining state, the work is performed in accordance with an interlocal agreement under 30-A MRSA, Chapter 115 and the work in Maine does not displace a Maine resident employee.
A part-year resident is subject to Maine income tax on all income derived while a resident of Maine, even if the income is received from out-of-state sources, plus any income derived from Maine sources during the period of nonresidence.

Follow the step-by-step instructions for completing Schedule NR. These instructions are printed on page 16 of the 2012 Maine Resident, Nonresident or Part-Year Resident Income Tax Booklet.

Worksheets A and B available at www.maine.gov/revenue/forms must be completed prior to completing Schedule NR.

Schedule NR, line 1. (Nonresident and “Safe Harbor” resident servicemembers, see page 13 for special instructions.) After you complete the Maine return through line 24 based on your total federal adjusted gross income, complete Schedule NR to calculate the amount of your nonresident credit. To complete Schedule NR, line 1:

1) Enter your total federal income in Box A (from Worksheet B, column A, line 15).

2) Enter all Maine source income in Box B, including any income earned in Maine while a nonresident or “safe harbor” resident of Maine (Worksheet B, column B, line 15 plus Worksheet B, column E, line 15).

3) Enter all non-Maine source income in Box C (Worksheet B, column D, line 15 minus Worksheet B, column E, line 15). If you included a taxable state income tax refund on your federal return, do not include that refund when completing Worksheet B or Schedule NR.

Schedule NR, line 2. If the ratio of non-Maine income to total income calculated on Schedule NR, line 2, is less than 0%, enter 0.0000. If the ratio is 100% or greater, enter the ratio like this: 1.0000. You may not claim a negative nonresident credit or a nonresident credit that is more than your tax liability otherwise due to Maine. You should always extend the percentage calculations four digits beyond the decimal point; for example, 5.00% (.0500), 25.25% (.2525) or 100.00% (1.0000).

Schedule NR, line 3. To complete Schedule NR, line 3, Federal Income Adjustments, multiply the amount of federal income adjustments listed on federal Form 1040, line 36 or federal Form 1040A, line 20, by the percentage calculated on Schedule NR, line 2.

Schedule NR, line 5. (Nonresident and “Safe Harbor” resident servicemembers, see page 11 for special instructions.) If you have completed Maine Schedule 1, Income Modifications, you must complete Schedule NR, line 5. Enter the amount of income modifications from non-Maine sources on Schedule NR, lines 5a and 5b as they apply. Generally, for a part-year resident, the amount of the non-Maine source income modification that is from intangible sources (interest, dividends, annuities, etc.) is calculated by multiplying the income by the percentage of the year you were a nonresident. For example, if you were a nonresident for 9 months of the year, you would enter on Schedule NR, lines 5a and 5b as applicable, 75% (9 months divided by 12 months) of the income modifications reported on Maine Schedule 1.

Do not include taxable refunds of state and local taxes.
Prorate the pension deduction (Form 1040ME, Schedule 1, line 2d) and the subtraction for premiums for Long-Term Care Insurance (Form 1040ME, Schedule 1, line 2f) based on the percentage of qualified pension income received or premiums paid as a nonresident.

Schedule NR, line 9. After completing Schedule NR, any nonresident credit on line 9 is entered on Form 1040ME, line 25. This credit will reduce your Maine taxes for income not taxable to Maine.

If you are a nonresident of Maine, and your only income from Maine sources are losses, you do not need to file an income tax return with Maine, because you have no Maine income tax liability. However, you may choose to file a return with Maine if you expect to have positive income from Maine sources in future years and want to avoid having gaps in your filing history.
You may not use Maine losses in a prior year to offset Maine income in the current year, unless those losses also appear on the federal return for the current year or the loss relates to a federal NOL carryback disallowed for Maine income tax purposes. (Federal NOL carrybacks with respect to NOLs realized in tax years beginning after 2001 are not allowed for Maine purposes. The disallowed NOL carryback may be recovered in the allowable carryover period.)
For additional information on determining what types of income are subject to Maine tax when received by a nonresident, refer to Rule 806 under “Laws and Rules” at www.maine.gov/revenue, or call (207) 624-7894, or write to the address on the cover of this pamphlet.

Attached is a sample return for a part-year resident. The instructions in the Form 1040ME booklet and this pamphlet are used to complete a Maine return for the Jellisons based on the information below:

Jim and Jennifer Jellison are from New York. They have a six-year-old daughter named Jessica. Jim works as an analyst for a large bank. Effective August 1, 2012, Jim was transferred to Maine while working for the same employer. Jim and his family moved to Maine and became residents of Maine on August 1, 2012. After coming to Maine, Jennifer was able to find a job as a supervisor in a local production facility.

In 2012, Jim earned a total of $37,895 in wages from the bank. He earned $25,895 in New York and $12,000 in Maine. Jennifer earned $25,000 from her job in Maine. From Jim's pay, $995 was withheld for New York income taxes and $600 was withheld for Maine income tax. Jennifer had $1,250 withheld from her pay for Maine. The Jellions had $600 in interest income throughout the year, $300 of which came from U.S. Government bonds.

The Jellisons filed a married joint federal income tax return for 2012 and reported federal adjusted gross income of $61,495. They contributed $2,000 to their IRA for the tax year and had total federal itemized deductions of $11,649, which included state income taxes of $2,845.

NONRESIDENT & “SAFE HARBOR” RESIDENT SERVICEMEMBERS:

The Servicemembers Civil Relief Act “SCRA” (Public Law No. 108-189) provisions which offset the computation of Maine individual income tax for certain nonresidents (including “Safe Harbor” residents) as follows:

1) Section 511(d) of the Act prevents states from including the military compensation of nonresident servicemembers in the total income when computing the applicable rate of tax imposed on other income earned by the nonresident servicemember, or their spouse, that is subject to tax by the state. These changes affect Maine returns beginning on or after January 1, 2003 for some military taxpayers (Maine returns beginning on or after January 1, 2007 for “Safe Harbor” residents.)

2) Amendments were made to the SCRA in 2009 to provide that a spouse of a servicemember may retain residency in their home state for voting and tax purposes if the spouse is in Maine solely to be with the servicemember who is in the state due to military orders. Income earned in Maine by a nonresident servicemember’s spouse who is domiciled in another state may not be considered Maine-source income. These changes affect Maine tax years beginning on or after January 1, 2009.

Since the 2012 Maine income tax return includes income of the nonresident servicemember, a deduction must be made on the Maine return for a nonresident (or “Safe Harbor” resident) servicemember. To deduct the military income of a nonresident (or “Safe Harbor” resident) servicemember from the Maine taxable income in 2012, use the following instructions:

1) Enter the total federal adjusted gross income on Form 1040ME, line 14.

2) Complete Form 1040ME, Schedule 1. Include the amount of military compensation of the nonresident servicemember on Form 1040ME, Schedule 1, line 2k, ‘Other’and enter “NR military compensation” in the space provided.

3) Complete Form 1040ME, lines 15 through 24.

4) Complete Form 1040ME, Worksheet A (if applicable) and Worksheet B for Part-Year Residents/Nonresidents/”Safe Harbor” Residents. NOTE: When completing Worksheet B, include the military compensation received by the nonresident (“Safe Harbor” resident) servicemember and the Maine earned income of the servicemember’s spouse on line 1, columns A and D. This procedure will ensure the proper determination of non-Maine-source income.

5) Complete Form 1040ME, Schedule NR or Schedule NRH (whichever is applicable).

NOTE: The military income of a nonresident (“Safe Harbor” resident) servicemember should be included on both line 1, boxes A and C and line 5b of Schedule NR. On line 5b, write “NR military compensation” in the space provided.

The Maine earned income of the servicemember’s spouse should be included on line 1, boxes A and C of Schedule NR.

The military income of a nonresident servicemember filing Schedule NRH should be included on both line 1 and line 5b, columns A, B and C of Schedule NRH. On line 5b, write “NR military compensation” in the space provided.

The Maine earned income of the nonresident servicemember’s spouse filing Schedule NRH should be included on line 1, columns A, B and C of Schedule NRH.

This procedure will ensure the proper ratio for the determination of the non-resident credit.
If you are completing Schedule NRH, see the Guidance Document titled “Instructional Pamphlet for Individual Income Tax, Schedule NRH” for more information.

6) Complete Form 1040ME, lines 25 through 35.

A “servicemember” is defined as a member of the Army, Navy, Air Force, Marine Corps, Coast Guard, a commissioned officer of the Public Health Service or the National Oceanic and Atmospheric Administration. It also includes a member of the National Guard who is under a call to active service authorized by the President or the Secretary of Defense for a period of more than 30 consecutive days for purposes of responding to a national emergency declared by the President and supported by Federal funds.

Any further questions about the computation of Maine individual income tax for certain nonresidents should be directed to the Income/Estate Tax Division of Maine Revenue Services at: income.tax@maine.gov or call 207-626-8475.

For more information, contact Maine Revenue Services:
Income/Estate Tax Division, 24 State House Station, Augusta, ME 04333-0024
Call: (207) 626-8475 Email: income.tax@maine.gov