@stoonie08 wrote:
I guess my my confusion lies with my situation. I am living in Texas, but I work remote from California. I feel like I am better off working in my current state because of that income tax. I never once stepped foot in California, but yet I still need to abide by those rules. Just feels a bit unfair.
Thank you for the response!
So you pay federal tax for sure.
Whether you pay CA state tax on your 401k withdrawal is complicated, but it sounds like you are being treated as a California resident. You are a California resident if you are domiciled in California, that is where your permanent home is located. You can be domiciled in California even if you are working and living out of state for a long time. Changing your domicile requires that you both establish a new domicile and take active steps to abandon your old domicile, such as selling your home, getting a new physician in your new location, changing church memberships, changing your voter and car registration, and so on. There is no one single factor that controls where your domicile is located. See here for more.
https://www.ftb.ca.gov/file/personal/residency-status/index.html
https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html
If you are domiciled in California, then you owe CA income tax on all your world-wide income, no matter where it was earned from and no matter where you living when the income is paid. That's just the law, and every state handles domicile basically the same way.
If you have never lived in CA, then you don't owe any income tax in California, even if you work remotely for a CA-based company. You have made a mistake somewhere in Turbotax. Is your employer withholding CA income tax even though you don't live in CA? If you are not having CA withholding from your check, why are you filing a CA return?
If you have never stepped foot in CA but you have CA tax withholding, you should be filing a non-resident return. Turbotax should be asking you to manually allocate each item of income to CA (wages, 401k distribution, interest and dividends, etc.). In your case, your CA allocation for all your income items is zero. That will result in no CA income, no CA tax owed, and a full refund of any withholding.
