I am W2 employee in MA. I am planning to move to CA. My income is mostly a year end of year bonus paid 12/31. Will it be pro-rata for MA X months or will it all be CA?

[ncabaloff]

I am trying to understand if CA is going to receive all the taxes for my bonus or will it be pro-rata for the time I am in MA and CA. Given CA rates are much higher, I would prefer the latter

[Opus 17]

Sorry.  As a California part-year resident, California will tax all world-wide income that is paid to you while you are living in CA, regardless of where you were living when it was earned.  The bonus will also be taxable in Massachusetts to the extent it relates to work you performed while living in MA.  In other words, if you continue to work for the same overall employer, and you lived for 75% of 2023 in MA, then 75% of your wages  (including the bonus) are taxable in MA, even if they were paid while you were living in CA.  If you are changing employers, and 100% of your bonus will be a result of work performed while you were living in MA, then 100% of the bonus will be taxable in MA, and also in CA. 

You should expect to prepare a part-year resident CA return and a part-year resident MA return.  CA should give you a credit toward income that is taxed in both states, but you may want to use a professional this year to make sure the income and credits are reported correctly.  

[ncabaloff]

OK understood. Super helpful thank you. 

Yes - I am staying with the same employer. So to summarize, the end of year bonus on 12/31 will be taxed in CA given I would be a resident there at that time, but given I was a resident and worked in MA for 75% of the year (and 25% in CA) then when I file my return (with help of a tax expert) CA will refund a portion and I will pay MA a portion.. correct?

[Opus 17]

@ncabaloff 

You will have to manually allocate your income across the two state tax returns. Massachusetts will tax all of the income that was paid to you while you were living in Massachusetts, and they will tax the bonus on a prorated basis, even though it was paid to you in California.  I believe the Massachusetts income tax rate is 5%. 

Then, on your California tax return, you will pay income tax on all of the income that was paid to you, while you were living in California including 100% of the bonus, even though most of it was earned while you were working elsewhere.  I believe the California tax rate is around 10%.

Then you will need to figure out how much of your income is being taxed in both states. It sounds like that would be 75% of the bonus.  in other words, 75% of the bonus is being taxed in Massachusetts at 5%, and 100% of the bonuses being taxed in California at 10%.  You can claim a credit on your California tax return equal to the amount of double taxation you are paying in Massachusetts, in other words, 5% of 75% of the bonus.  The end result is that the bonus is fully taxed in Massachusetts, and partly taxed in California, and the total amount of tax you pay on the bonus (after deducting the credit) is equal to the tax you would’ve paid in the higher tax state.

[ncabaloff]

Sorry now I’m confused. Wouldn’t the end result be the below, after all the adjustments and credits? 

75% of bonus is taxed in MA 

25% of bonus is taxed in CA 

Assuming I spend 3/4 of the year as resident of MA and 1/4 of year as resident in CA

[Opus 17]

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@ncabaloff wrote:

Sorry now I’m confused. Wouldn’t the end result be the below, after all the adjustments and credits? 

75% of bonus is taxed in MA 

25% of bonus is taxed in CA 

Assuming I spend 3/4 of the year as resident of MA and 1/4 of year as resident in CA

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California taxes all your world-wide income that you receive while a resident of California, regardless of where you performed the work. A bonus that you receive while a resident of California is 100% taxable in Californian even if it was mostly earned while you lived in another state.

California will tax 100% of the bonus.  Massachusetts will tax 75% of the bonus.  California should allow you to claim a credit for the tax paid in Massachusetts, but that is not the same as only taxing 25% of the bonus.

To make an oversimplified example.

Your bonus is $100,000, paid on 12/25/23 while you are a resident of CA.   75% of the bonus will be taxed in Massachusetts, according to the "Massachusetts source income" rules in their tax return instructions for part-year residents.  Since MA's tax rate is 5%, you would pay 5% x 75% x $100,000 or $3750.  100% of the bonus is taxed in CA, at an approximate tax rate of 10%, or $10,000.  CA should then give you a credit of $3750, leaving you with a net CA tax of $6250. 

[ncabaloff]

Yes thank you 

[TomD8]

It's like this:

A bonus you receive for work you actually performed in Massachusetts is fully taxable by Massachusetts regardless of where you live.  

If you receive the bonus (or any portion thereof) after you become a resident of California, the amount received will also be taxable by CA.  But in that situation, you'd be able to claim a credit on your CA return for the taxes you paid to MA on those dollars - thus avoiding double taxation.

[Opus 17]

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@TomD8 wrote:

A bonus you receive for work you actually performed in Massachusetts is fully taxable by Massachusetts regardless of where you live.  

Right, but in the present case, it appears the taxpayer will continue to work for the same employer, in a different location, and will be paid a bonus at the end of the year.  In that case, the bonus is proportionally taxed by Massachusetts.  If I misunderstood, and the taxpayer is also changing employers, and the bonus only represents work performed in Massachusetts, then it will be fully taxed in Massachusetts (and California).