You will file an Indiana Resident return and a CA non-resident return. The general rule is: your report ALL your income on your home state return, even the income earned out of state. You file a non-resident state return for the state you worked in and pay tax to that state. You do not necessarily get out of paying income taxes to your home by working in another state. Tax treatment of out-of-state income depends upon the type of income and the state from which the income is derived. the state of Indiana has entered into reciprocity agreements with several other states (Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin) to eliminate the requirement to pay taxes to two states on the same income. Unfortunately, CA is not one of the reciprocal states. However, starting in 2017, Indiana residents included in a California composite return will receive a credit equal to the Indiana income tax rate multiplied by the income taxed by both Indiana and California, reducing the effective state tax rate on their California source income to 9%.
To clarify:
Since the state you work from, CA does not have a reciprocal agreement with your home state of Indiana, you’ll have to file a resident tax return and a nonresident tax return.
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On your resident tax return (Indiana), you list all sources of income, including that which you earned out-of-state.
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On your nonresident tax return (CA), you only list the income that you made in that state.
In some cases, your home state will allow you to claim a tax credit on your resident tax form for the taxes that you paid to your work state. So, you will want to prepare your nonresident return first.
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