AZ - CA tax reciprocity agreement

STATES WITH RECIPROCAL AGREEMENTS

https://ttlc.intuit.com/turbotax-support/en-us/help-article/state-taxes/states-reciprocal-agreements/L4JKSLqpR_US_en_US?uid=m6k6bgwh

I am not familiar with the reciprocal agreement between Arizona and California, or with Arizona and California tax laws, but here are a few things you need to look into.

First of all, you used both the words "contract" and "employer," so it's not clear whether you are an employee or an independent contractor for the California company. If you are an employee they withhold income tax from your pay, and they will send you a W-2 at the end of the year. If you are a contractor they do not take any deductions from what they pay you, and they will send you a Form 1099-NEC at the end of the year. You have to be clear about whether you are working as an employee or as a contractor.

Most reciprocal agreements apply only to W-2 income. So if you are a contractor, the reciprocal agreement might not apply to you.

For someone who lives in one state and works in another state, the most common arrangement is to pay tax in both states, but get a credit on the resident state tax return for part or all of the tax paid to the nonresident state. But Arizona and California are "reverse credit states." That means that the usual arrangement is reversed. You would get credit on your California nonresident tax return for the tax you pay to Arizona. This would apply to all types of income, so it would apply whether you are an employee or a contractor.

You need to find a local tax professional who is familiar with the details of the tax arrangements between Arizona and California. If you rely on your current accountant, first of all make sure that she clearly understands whether you are an employee or a contractor in California, and takes that into consideration. Then ask her whether the reciprocal agreement applies, and how the reverse credit arrangement affects you. If she seems to be unfamiliar with these details, you might need to find another tax professional who is better acquainted with these considerations.

Deleted....rjs covered it.