Double taxation between CA-NY-NJ

[ikonst]

I've moved from California (working in California) to New Jersey working in New York. I've remained with the same employer (which has California and New York offices).

I learned that NY calculates its income tax off my federal income, which it then allows me to multiply by an income allocation ratio (denoted as percentage or number of days in the year).

For sake of example, let's assume:

• From January 1, I worked in California.
• On July 1, I relocated to New Jersey and to the New York office.
• I worked in the New York office until the end of the year.
• In the California office my wage was $4,000 monthly.
• In the New York office my wage was reduced to $2,000 monthly.

This would make my federal wage at $4,000 * 6 + $2,000 * 6 = $36,000.

California would tax $4,000 * 6 months = $24,000 of my income.
New York would look at the federal income ($36,000), then based on me working in New York for half the year, applying 50% income allocation would have New York tax $18,000 of my income.

Summing it up, I'll be taxed over $42,000, which is higher than my income, and looks like double taxation to me. Since neither California nor New York treat me as a resident, I'm unable to apply for resident tax credits with either of them. I can apply for resident tax credits with New Jersey, but this can at most zero out my tax liability with New Jersey.

Is there any way to get out of this double-taxation?

Is it permissible to use the NY "income allocation" as means to getting a "fair" amount to pay NY taxes for?
Can I leverage my status in California as a part-time resident for tax credits for NY taxes?

[JotikaT2]

Yes.  You can claim a credit in California for taxes paid on the income earned while a resident of California but also taxed in New York.

You can also get a credit in New Jersey for the taxes paid in New York while you were a New Jersey resident.

You should be filing two part-year resident state tax returns for California and New Jersey, and one nonresident New York state tax return.  

In the "My Info" section of TurboTax, confirm that you have entered the correct state information:

1. Click "Edit" to the right of your name
2. Confirm your input under #2 "Tell us the state(s) you lived in"
3. Confirm the rest of the state-specific questions here as well including the "previous state of residence" and "date you became a resident" of the state noted
4. Do the same for your spouse if you are married filing jointly.
5. Go back to the personal information section, and verify the mailing address and "Other state income" section.

Review your input on your W-2 Wages under the "Income & Expenses" section.

Confirm that you have entered the correct state for each W-2 in Boxes 14-15.

This will then allow you to enter your state returns for the nonresident state as well as the part-year resident states.

Prepare your nonresident New York return first.  Pay attention to the information on each screen to ensure the nonresident return is calculated correctly.  After you have entered all of your New York information, you will see a screen like the one below.  Make sure to write down the Allocated NYS tax.  You will need this number to claim a credit for the income earned and taxed in both California and New York.

Next, prepare your part-year California resident return.  You will again follow through the screens to ensure you have allocated only the income earned while you were a resident of California.  You will then see a screen that you can edit to ensure you receive credit for income taxed by New York while you were a California resident.

Finally, prepare your part-year New Jersey resident tax return.  You will be able to get a credit for the taxes paid to New York while you resided in New Jersey.

Essentially, you can get a credit in each of the states you were a resident of if the income is taxed twice.  This will avoid any double taxation.  The input will depend upon the state reflected on your W-2, Box 15 for state source wages.

[ikonst]

Thanks a lot @JotikaT2 ! In this case, even though seemingly NY is pocketing more than just NY-sourced income, I shouldn't care since I wouldn't be double-taxed.

However, this does put me in a position where I'd have to pay NY state significantly more taxes than my NY withholdings. This would have me pay NY underpayment penalty. Is there a way to pay NY state just for NY-sourced income?

Things are made even more complicated by the fact some of my compensation is in RSUs. According to my employer, taxation on RSUs is proportional to where they "spent their time" vesting. The RSUs have been granted a while ago, so they spent most of their vesting time in California. This way, for RSUs that vest after my transfer to the NY office, my employer withholds California taxes off ~95% and NY taxes off ~5% (this split will shift towards less CA and more NY over time...). This further increases what appears to be "under-withholding" NY taxes, unless there's a way to make NY recognize this allocation as the correct one.

[AmyC]

When you go through the NY return, the allocation of that RSU income is divided up. New York should only be taxing the NY percentage of your income.

NY does tax heavily. You may need to have more NY tax withheld.

You may want to contact a specialist that can work through that section of the return with you. 

[d7g]

I get an error from TurboTax smart check saying CA non-residents are not allowed to claim state tax credit from NY state.

Are you sure CA part-year residents are allowed to deduct state taxes taxed by NY on the same income?

[RaifH]

Yes, you can claim a credit for taxes paid to another state while you are a part-year resident of California. This is only for the time you were living in California. You are not allowed to claim a credit on your California return while not a resident.

To do this, you would complete your New York part-year return. In your California return, in the Credits and Taxes section, select Revisit/Start next to Other State Tax Credit. Verify you were living in California, select New York from the pull-down menu and enter the income that was taxed by both states while you were living in California. You will then enter the total taxes paid to New York and New York's adjusted gross income to calculate the credit on your California return. You can get this information from the NY tax summary:

1. Open or continue your return.
2. Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
3. With the Tax Tools menu open, you can then view your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then NY Tax Summary in the left menu
4. NY AGI is on the fifth line. The Tax paid is the sum of Total New York State, New York City Taxes and Yonkers City Taxes

@d7g

[d7g]

Turbotax incorrectly classifies me as a California non-resident instead of part-year resident even though I answered the following questions correctly (I was living in California from 2018 to March 30, 2021 and then moved to Florida).

Did you become a California resident during 2021? No

Did you become a California nonresident during 2021? Yes

Were you a California nonresident during all of 2021? No

Were you a California resident before 2021? Yes

Did you enter California before 2021? Yes

Did you leave California before 2021? No

This is the error I get since TurboTax thinks I am a full year non-resident:

So I am unable to get the other state tax deduction. People have had this same issue before: https://ttlc.intuit.com/community/state-taxes/discussion/california-ca-sche[product key removed]/01/...

I called 5 different turbotax live agents including a CPA on the phone and none of them knew how to fix this!

[AmyC]

Ca only has two options, resident or nonresident. As a nonresident, you lived there and those days are filled in. When you select the state that you moved to, the program should be working. Once you select the state from the dropdown, what is the error?

Reference: 

Ca resident instructions state: 

Were you and your spouse/RDP residents during the entire year 2021?

• Yes. Check the chart below to see which form to use.
• No. Use Form 540NR. To download or order the California Nonresident or Part‑Year Resident Income Tax Booklet, go to ftb.ca.gov/forms or see, “Where to Get Income Tax Forms and Publications.”

@d7g

[d7g]

California has three options (Nonresident, Resident and Part-year resident) as you can see in the image below. TurboTax has clicked the wrong one:

[rajaman]

Have a follow up question here on "

Essentially, you can get a credit in each of the states you were a resident of if the income is taxed twice.  This will avoid any double taxation.  The input will depend upon the state reflected on your W-2, Box 15 for state source wages."

Both CA and NY in turbotax to claim tax credit for taxes paid to other states. The NY options asks you to list "total tax" paid to california, and the CA options are what you shared in the above answer. 

If I've moved from CA -> NY (same as this thread's example), is it legal to fill out both of these? I.e. get tax credit in NY for taxes paid to california (on those 24000 of california taxed income), as well as get tax credit in CA for taxes paid to NY (on any of the 36000 that was double taxed by both CA and NY). 

If I cannot, can I pick which one gets me the biggest refund? If not, which one should I be getting the credit for - the state I'm currently a resident in, or something else? 

[LindaS5247]

You should be filing a resident (NY) and a nonresident tax return (CA).  You should enter your nonresident state tax return first.

It is recommended to prepare the nonresident state first because your resident state will provide you a credit for the tax you pay to the nonresident state.  By preparing the nonresident state first, TurboTax can transfer the credit information to your resident state tax return.  

So this should be calculated for you.

Click here for instructions on how to file your nonresident return.

Click here for information regarding filing multiple states returns.

[rajaman]

Hi Linda, 

Thank you for the answer. I read over the docs linked. 

I guess I'm still confused, especially based on the answers previously in this thread.

"

Essentially, you can get a credit in each of the states you were a resident of if the income is taxed twice.  This will avoid any double taxation.  The input will depend upon the state reflected on your W-2, Box 15 for state source wages.
"

In the original question, the OP was a nonresident of both CA and NY, and was able to get credit in CA for taxes paid in NY. 

Currently, I'm a resident of NY - so this means I cannot get credit in CA for taxes paid in NY? Even though the same double tax rules apply? 

[ErnieS0 · Accepted solution]

Yes. You will claim a credit on your resident tax return for tax paid to another state. California has a few odd rules allowing to you claim the credit on the nonresident return, but that doesn’t apply to New York residency.

In the original question, the Op either made an incorrect assumption or had RSUs or other income that was double taxed by California and New York.

The OP said she made $12,000 in NY ($2,000 x 6), but then said her NY income was $18,000, or half her federal income. That would be incorrect if she only made $12,000 based on her pay stubs. NY only taxes you on what you actually earned. It does not tax you on total federal income divided by the months you were a resident.

The second case is if the OP had RSUs or other California-sourced income that was earned as a result of CA employment but received while living in NY because the OP worked for the same employer. In that case, the OP could claim a credit on the NY return, because the amount is included in both CA and NY income.

@rajaman