California Adjusted Gross Income as a CA nonresident - 540NR

[aparagas]

Hi everyone,

I took a look into the tax summary section and it looks like for the California Adjusted Gross Income, it uses my entire federal gross income. However, I was a California nonresident all of last year (not part-time, but completely nonresident).

I do have California taxable income from RSUs that between the time they were granted and vested, had spent time in California and this is correctly reflected in the tax summary. Taking a look at the 540NR CA worksheet - https://www.ftb.ca.gov/forms/2021/2021-540nr.pdf, https://www.taxformfinder.org/forms/2021/2021-california-form-540-nr-schedule-ca.pdf, it looks like the California Adjusted Gross Income should only be based on "CA amounts - income earned or received as a CA resident and income earned or received from CA sources as a nonresident". Filing as a married couple, not only does it seem to include all my income as California Adjusted Gross Income, it also is including my wife's gross income.

Is there any way to fix this California Adjusted Gross Income? Going at https://smartasset.com/taxes/california-tax-calculator and plugging in my California taxable income, I should be taxed way less than what Turbotax is reflecting.

[ErnieS0]

California includes your total income on a nonresident return because of the way California calculates tax.

The state starts with federal adjusted gross income and then subtracts your federal itemized deductions to come up with California taxable income (after some state-specific adjustments).

This is the base tax, or the amount of tax if all your income was earned in CA. You are then taxed on the CA percentage of this income. So if 10% of your total income is from CA, you pay 10% of the base tax.

You can see the calculation on lines 31-38 of Form 540NR.

[aparagas]

Hi Ernie! Does that mean that California adjusted gross income can be very different from California taxable income? My California adjusted gross income takes all of our income together (even from non-CA sources), whereas the California taxable income only takes CA source income.

How are the tax brackets calculated on the CA source income? If my total income is way more than my CA source income, am I effectively taxed at the higher brackets at https://www.nerdwallet.com/article/taxes/california-state-tax?

[MaryK4]

Yes, that is exactly why they use the California AGI to determine the tax rate.  @aparagas

[aparagas]

Taking a look at the 540NR CA worksheet - https://www.ftb.ca.gov/forms/2021/2021-540nr.pdf, https://www.taxformfinder.org/forms/2021/2021-california-form-540-nr-schedule-ca.pdf, it looks like the California Adjusted Gross Income should only be based on "CA amounts - income earned or received as a CA resident and income earned or received from CA sources as a nonresident" though as a California nonresident.

[K20212]

any updates on this? i am running into the same issue, where my % of CA Non-Resident Income is causing a much higher CA non resident state tax vs. if it was calculated on my W2 CA Income only. 

[ErnieS0]

There are no updates. This is the way California, and many states calculate tax for nonresidents and part-year residents.

California and similar states use the tax rate for your total income (minus some adjustments), not the tax rate on California income only.

However, you are only taxed on your actual California income. Your tax rate is just higher. The thinking is that some who makes $1 million, but $20,000 in California should not pay the same tax as a California resident whose total income is $20,000.

@aparagas @K20212