California Other State Tax Credit

[stevew7]

I lived & worked in PA for 200+ days, then moved to CA.  My employer from PA issued a final paycheck after my move which was subsequently subject to PA & CA state tax on the W2 & paycheck.

When filling out my state returns in TurboTax, my understanding is that in PA this is fully taxable since it originated from a PA employer.  Filling out the PA state did give me the option to make a manual adjustment for this amount, but I do not believe I should (since the employer is in PA).  (please correct me if I am incorrect)

When filling out my CA return in TurboTax, it told me "California nonresidents can only claim this credit for tax you paid in AZ, OR, VA, or Guam" however, in reading the CA tax Schedule S, it seems like I am able to claim a credit for the amount I paid to PA.  Am I correct?  https://www.ftb.ca.gov/forms/2020/2020-540-s-instructions.html

If so, how am I able to fill it out correctly?

[MaryK4]

If you changed state residency (on a permanent basis), you would file a Part-Year return for Pennsylvania and California.  On a Part-Year return, you only pay tax on the income you earned while a resident of the state or earned in the state while a nonresident.  

T he credit for taxes paid to another state would only apply if you earned money in Pennsylvania while you were a resident of California. Did you have the same employer? If so, it is possible that the state wages on the W2 represent the wages in each state.  

[stevew7]

Thanks @MaryK4.  To clarify, the CA form is the 540NR where I am listed as a part resident and the form for PA lists part year resident & final return.

I had the same employer, the work was finished in PA, it's just that the final paydate was after I moved, I did not continue to work for the same employer while in CA.  In that situation, am I correct to say I owe for PA taxes but CA state return should give me a credit?  Or is it vice-versa, I should be reporting it to PA as out of state tax credit?

If CA is supposed to give me the credit, how do I have TurboTax calculate this?  It keeps saying I am a "nonresident of CA and if I'm not a resident of the states above I do not qualify."

[stevew7]

Just checking if anybody else from intuit has any insight into the follow up questions? I just forced the creation of a schedule s for California via edit forms but I'm not sure that's the right way to do it?

Thanks in advance!

[DMarkM1]

No, you shouldn't need to create the form in "Forms View" in this situation.  I'm not sure by reading that any credit is due. 

Since you were part-year resident in both states you would allocate the income earned while living in PA to PA and that earned while living in CA to CA.  When you got the pay is not a factor.  You earned the income from a PA company while you were physically in PA do not allocate any of that income to CA.  It will not be taxed by CA and any mistaken withholding is credited against whatever your CA tax liability is. 

However, if I misread and you actually do have income that you earned from PA while living in CA then the answers to the questions in the step-by-step interview for CA will generate the proper forms for the credit.  You will however need to rework your PA return as you will need to know the tax and PA adjusted gross income for only the part of wages that were earned in PA while you were resident in CA.

You will need to reallocate to PA only the double taxed income (PA wages while a resident of CA) and then take note of the PA income and tax on that income at the end of the PA summary.  Those are the numbers you need for the CA credit.

In the CA credit section using the "Other state tax credit" topic, be sure to check to box indicating "You were living in CA when you earned this income."  Only enter the double taxed income amounts.  From your PA summary enter the tax paid and the PA AGI (only for the double taxed income).  

Once you have those numbers then you will need to go back to the PA return and add in the allocation for the rest of the PA wages (resident portion) so that all are allocated there properly to PA. 

[stevew7]

Thank you for explaining @DMarkM1 . You are correct that the PA company work was while I was in PA, just the paycheck came after.  However because I changed my address prior to the check issuance, my employer taxed both CA and PA for that final paycheck.  If I understand you correctly I should be receiving the CA state tax credit for the full amount that was deducted?

And to claim this, I should use the other state tax credit?

[DMarkM1 · Accepted solution]

Understand and no.  Simply allocate all the PA wages to PA and none to CA.  CA will not tax that income as it was not earned while you were a resident of CA.  So instead of claiming the income and then a credit you will simply not claim the income.  

The CA withheld taxes on the PA income will then offset part of your CA tax liability.  You do not need to claim the credit for taxes paid to another state.   

[stevew7]

Thanks for your help! @DMarkM1 To clarify, in what section do I allocate the wages to each state that will help adjust the taxes that I owe?

[DMarkM1]

In both the PA and CA interviews the allocations are entered/completed in the "Income and adjustments" section.