Complex state tax situation

[douglasjia]

In this year (2021), I remotely worked in New York City throughout the year. But from 2021-01-01 to 2021-10-15, I lived in New Jersey; and from 2021-10-15~2021-12-31, I lived in California. So, in this case, how should I file state tax returns for this year? Will California or New Jersey tax all my income throughout the  year?

A separate question: As I just moved to California, I found both California and New York are withholding some taxes on my paycheck. But I heard I won't be double taxed. So, why both states are withholding tax on my paycheck?

[Mike9241]

According to New York’s taxation website, any nonresident whose primary office is in the state but is telecommuting is still considered to be working in the state. Many states, including New Jersey, provide a tax credit to eliminate “double taxation” of a person’s income.

are you working for the same company while living in CA?

if so, CA will tax you as a resident only on income earned while domiciled there and you would be liable for NY taxes based on its telecommuting rules. 

the same is true for NJ. it will tax you as a resident only on income earned while domiciled there and you would be liable for NY taxes based on its telecommuting rules.

[douglasjia]

Yes, I am still working for the same company.

So, is it correct that both California and New York withhold tax on my paycheck? What is the tax rate for that? On my paycheck, New York is withholding about 3 times more than that withhold by California. Based on my research, California state tax should be higher than New York state. So why is that?

Thank you!

[TomD8]

New York:  if you're a non-resident of NY, and assuming you're working remotely for your own convenience, rather than because you were directed to do so by your employer, ALL your income from that work is taxable by New York.  This is called the "convenience of the employer" doctrine, which is employed by a small number of states.

New Jersey:  ALL your income during the time you were domiciled in NJ is (also) taxable by NJ.

California:  ALL your income during the time you were domiciled in CA is (also) taxable by CA.

Therefore at year's end you'll be filing:

1.  a non-resident tax return for NY, reporting all your remote earnings; and

2.  a part-year resident tax return for NJ, reporting all the income you had as an NJ resident; and

3.  a part-year resident return for CA, reporting all the income you had as a CA resident.

You will be able to claim an "other state credit" on both your NJ and on your CA return for the taxes you paid to NY on the income also taxed by the particular resident state, so you won't be double-taxed.  Thus, because of the credits you can take, most (if not all) of your net state taxes due will be due to NY.

So you definitely want your employer to withhold NY taxes.  Your credits for NY may or may not cover your taxes due to the other states, depending on the numbers.  But your entire year's remote-work income will be taxable by NY.

Post back if you were required to work remotely by your NY employer, because that would totally change the scenario.

[douglasjia]

Hi, 

I have a follow up question. How can Turbotax know which part of my income were earned  while I was living in NJ and which part of my income were earned while I was living in CA (suppose I work remotely for the same company in NY throughout the year)?

Will my W2 reflect this information if I changed my address in my companies system to reflect this change? Or Turbotax will ask me to input the date ranges I lived in NJ and CA?

Thank you!

[RaifH · Accepted solution]

It depends, the amounts may be reported on your W-2. In the states section in boxes 15-17, your wages may already be allocated between NJ and CA. If they are not, you will have to calculate the allocation yourself. 

When it comes to allocating your earnings between California and New Jersey, the most accurate way is to look up your old pay stubs and see how much you had earned prior to the move. That income gets allocated to New Jersey, the remainder gets allocated to California.

If you do not have access to your old pay stubs, you may allocate based on the number of days you were a resident in each state. This really only works if your income was earned more or less evenly throughout the year. 

You will handle the allocations in your NJ and CA returns. It does not have to be accurate down to the dollar, just make sure you are allocating the entire amount to one state or the other. 

In the My Info section of your return, enter your state of residence as California. Select Yes / New Jersey to I lived in another state in 2021. Enter the date that you became a resident of California. 

On the next screen, under Other state income, make sure New York is selected. After completing your federal return, complete your New York nonresident return next. This is so that NJ and CA may properly apply a tax credit for the taxes paid to NY. 

With regards to your earlier question, the reason both CA and NY taxes are being withheld is that you are being taxed by your nonresident state of NY and your resident state of CA. CA gives you a credit for the taxes you pay to NY, but since CA taxes are so high, they withhold an additional amount above what NY is withholding.