double taxed in CA and IL

[Opus 17]

@coolbean 

"Thanks for the reply! I actually own a permanent home in TX and that's why I filed nonresident for both IL and CA. I lived in IL until March 2022 and moved to CA in Aug 2022 (the rest of the year was in TX). "

That may change things considerably.  You need to become familiar with the idea of domicile.  Domicile is your one real permanent home.  You only have one domicile at a time. You remain domiciled in one place until you take active steps to establish a new domicile and abandon the prior domicile.  Even though you owned a house in Texas, your domicile could be in Illinois, depending on the totality of the circumstances. 

Even if your domicile in is Texas, many states have a statutory resident rule.  That means that even if you are domiciled in one state, you are considered a resident of another state for tax purposes if you live in that state long enough.  I am not an expert on Illinois but I briefly reviewed the Illinois law, and it says that you are a resident if you live in the state the entire year (even if you are domiciled elsewhere), and if you were a resident one year, you are a resident the next year if you lived in Illinois more days than you lived in any other state.

https://ilga.gov/commission/jcar/admincode/086/086001000J30200R.html

You certainly should have filed your California return as a part-year resident and not a non-resident, since you changed your domicile.  But as @TomD8 noted, California uses form 540NR for part-year residents, so just knowing which form you used doesn't tell us what you declared as your residency status.

You need to determine how you should have filed in Illinois based on their laws and regulations.  Even if you had a home in Texas, you might have been an Illinois resident for tax purposes.  Then, after determining if you were a resident, non-resident or part year resident, you will need to figure out what proof the state will accept.

You may benefit from professional assistance. 

[TomD8]

@coolbean wrote:   "I would still need a tax credit from CA."

Did you have Illinois-source income after you moved to California?  If you did not, then you are not due any tax credit from CA.  CA will only grant a credit if you have income that is legitimately taxed by both CA and another state.  

If your employer mistakenly withheld IL taxes after you became a CA resident even though you no longer lived or worked in Illinois, then no credit is due.  Your only remedy is to obtain a refund of the incorrectly withheld taxes from Illinois.  CA will not give you a tax credit for a mistake made by your employer.

[coolbean]

"Did you have Illinois-source income after you moved to California?" I did not, but my employer didn't update my work location so officially both my w2 and IL revenue department think I did. Both IL and CA are taxing this income. Therefore, I think I am due tax credit from CA.

I cannot obtain a refund from IL without my employer providing the letter. Are you saying there's nothing I can do about being double-taxed?

[Mike9241]

have you asked your employer for a corrected w-2 or letter?  without either, Illinois will do nothing. 

[TomD8]

@coolbean --

Yes, your employer withheld Illinois taxes after you became a California resident, but that was a mistake on their part.  Technically and legally, per the laws of both states, you had no Illinois-taxable income after you became a California resident.  Therefore, you have no income that was legitimately taxed by both states, and you are not entitled to an "other state" tax credit from California.

As I said before, your only remedy in this situation is to seek a refund of the incorrectly withheld taxes from the state of Illinois.  If Illinois is requesting a letter from your employer in order to issue a refund, then it appears the issue is between you and your employer.  

[coolbean]

I understand my employer is the one making the mistake. But the HRs at my company refuse to help me. Do I need to consult a lawyer in order to get my refund back?

[Mike9241]

one other avenue to try before seeking legal advice. The IRS.

this is from form 4952

• If you don’t receive the missing or corrected form from your employer or payer by the end of February, you may call the IRS at
800-829-1040 for assistance. You must provide your name, address (including ZIP code), phone number, social security number, and dates of
employment. You must also provide your employer’s or payer’s name, address (including ZIP code), and phone number. The IRS will contact
your employer or payer and request the missing form. The IRS will also send you a Form 4852. If you don’t receive the missing form in
sufficient time to file your income tax return timely, you may use the Form 4852 that the IRS sent you to file with your return.

[Opus 17]

@Mike9241 

The IRS has nothing to do with this.  The W-2 is correct.  It shows the withholding that was actually collected during 2022.  It can't be changed retroactively.  The fact that the employer should have stopped the Illinois withholding and switched to California withholding doesn't change the fact that the W-2 accurately shows what really did happen.

The problem here is that Illinois (seemingly, remember, we can't see the taxpayer's letters or hear the phone calls) wants the employer to certify that the employee moved.  This seems to me to be the wrong demand.  The employer has no say over where the employee lives, as long as the employee completes their duties.  The employee could have lived in Indiana or Michigan while working in Illinois, and the employee could be living in Arizona or Nevada right now and just commuting a really long way to their current job in California.  The state of Illinois should be asking the employee to prove where they live, and that they changed their permanent residency (their domicile), not asking the employer to ratify it.

@coolbean 

Some additional dialog needs to happen between the taxpayer and the examiners in Illinois.  It may be time to get a professional involved, although whether an attorney or an accountant would be better, I can't say.  

[TomD8]

@coolbean --

Here's a link to a document from the Illinois State Bar Association.  The link discusses the issue of how to prove non-residency in Illinois.

https://www.isba.org/sections/statelocaltax/newsletter/2010/06/imanonresidentofillinoismaybe#:~:text...

Personally, I think a copy of your part-year resident California tax return, including Schedule CA (540NR), might be helpful in proving your case, since it includes the date you became a California resident and it documents that you paid CA taxes from that date.