Dual state taxation

[jawckey]

Hello, 

Pl. clarify the following. I am using some numbers to illustrate the problem, not that they are real numbers, nor need to apply any tax brackets etc. But I want to understand the generic priniciple. Pl. consider this scenario.

- I live and file taxes in Arizona. And state tax % is approxmately is, say 5%. Most of my income is Arizona income, say it is 300K

- However I have an additional income from California also, and the income say $200,000. CA tax % is say 10%

So total income is 500K. With this situation,  when I need to pay taxes ...

- Do I end up paying 5% of the CA income of 200K  besides 5% of AZ income of 300K to AZ?

- And also another10% of the CA income 200K to CA as well?

OR

- Will I be paying only 5% of AZ income of 300K to AZ

- And 10% CA income of 200K to CA

Pl. help understand how this works.

regards

Basic

[KrisD15 · Accepted solution]

All states have different laws, and different types of income is taxed differently,

but for simplicity 

If you are a resident of Arizona and a NON-resident of California,

you will pay the 10% California tax on the California income 

You will pay 5% Arizona tax on ALL your income HOWEVER Arizona will give you a credit for the tax you paid on the 200,000 to California HOWEVER Arizona will calculate that credit on their 5% tax rate, not California's 10% tax rate.

So if you paid CA 20,000 on 200,000

You will pay AZ 25,000 on 500,000 and get a credit of 10,000 for the 200,000 for a total AZ tax of 15,000.

So total tax for both states, 35,000

(Has it all been CA, tax would be 50,000)

(Had it all been AZ, tax would be 25,000)