Good question. This CA AGI can be misleading. Essentially the CA AGI is from ALL sources...MD AGI is the same--income from ALL sources. This, of course, seems inherently unfair because CA and MD are both taxing the same income...Double Taxation anathema to taxpayers. A system is in place however to remove or mitigate the Double Tax Effect. Typically, the Resident State (MD) will offer up a credit for "Taxes Paid to Another State" (CA). The credit is the lesser of the tax paid to the other state or the tax on that income at the Resident State rate. An example may help to clarify:
Income from all sources = $100,000 (Fed AGI)
Resident State (MD) = $98,000
Non-Resident State (CA) = $2,000
Always prepare the Non-resident Tax Return first.
After all the deductions/credits CA Taxable income = $50,000 and the Tax = $4,000+
BUT: only 2% of the income is CA sourced so the final Tax for CA is: $4,000 X .02 = $80
Next...the Resident State (MD) tax return.
After all the deductions/credits MD Taxable income = $50,000 and the Tax = $2,000
The credit is the lesser of the tax paid to the other state or the tax on that income at the Resident State rate.
TAX PAID TO OTHER STATE = $80
TAX ON THE NON-RESIDENT INCOME AT THE RESIDENT STATE RATE = .02 X $2,000 = $40
Lesser of the above + $40
Therefore the taxpayer would incur the following Tax Balance:
Non-Resident = $80
Resident = $1,960 ($2,000 - $40)
P.Ray EA
Intuit -TurboTax -xTest Team
Tax Accountant: How many dependents do you have?
Client: Well, that depends. How many do I need this year?
