I exercised NQSO stock options in 2018. For 90% of the time that I held these options I lived in IL. But recently moved to CA. Which state do I pay income tax to?

[johnjaffke]

Turbotax gives me CA credit for the Illinios tax paid, but since CA has a higher rate I am having to pay additional tax to CA.  Can I prorate the taxes based upon the time lived in both states?  

[DanielV01 · Accepted solution]

Turbotax is calculating this correctly.  Your resident state taxes all of your income no matter where you earned it at.  Illinois can tax the income because it is considered as "Illinois Source" income.  California does allow you to claim a credit for the taxes you pay to Illinois on this income, but, as you mention, California tax is higher, so they still receive a balance of what they tax the income after crediting what Illinois taxes the income.

Even if you could prorate the expense, California would still be allowed to tax all of the income because that's where you live when you receive it, and therefore your end tax result wouldn't change.

[johnjaffke]

Thanks Daniel.  Of course I was hoping for a different answer, but at least now I know that TurboTax is calculating it correctly.  

[DanielV01]

I understand, but I'm happy to help.  Best of luck to you.

[johnjaffke]

Daniel I also just noticed that I effectively have two W-2's for the same income.   Illinois taxed the entire gain on my Option Exercises, and withheld taxes as described earlier.  I also have a California W-2 which has the same Box 1 income as the Illinois W-2, but the "State Wages" in Box 16 are 67% of Box 1.  What does this mean, and can I use the lower Box 16 number as income on my CA state return??  

[DanielV01]

Enter the two W2s as if they were one.  I misread your original question a bit.  You are filing as a Part-Year resident in California for the portion of time that you lived there.  That amount is reflected by the fact that the CA amount is lower.  On the W2 screen, enter in the Federal and Illinois amounts, and then you'll see an option to "Add another line".  Click on that, another state line is made available, and then you can enter the CA information.

The rest of my answer is still true:  CA and IL tax the same income, but only the portion that you made living in CA is taxed in both.  With this modification, you may see your tax decrease (or your refund increase) for CA.

[johnjaffke]

OK thanks Daniel.  I entered both EW-2's as if they were one.  I added the CA tax ID and Income amount.
 But my CA tax due did not change.  This seems very odd, as I expected my tax due to decrease.  Do I have to re-enter my state information??   Please advise -

[johnjaffke]

Daniel I just went in and made an income adjustment to my wages on the California State Return (by the amount of the difference between the 2 state W-2 amounts).  This dropped my tax due by the expected amount.  Is this correct approach, or was Turbo-Tax supposed to handle this automatically?   John