If I work full time in California but live in Oregon, do I need to have both states income tax deducted from my pay check?

[dmldillard]

Hi,

I am planning on moving back home to Oregon but flying back down to work about 12 days a month in California (the wage is far superior to that in Oregon), but am confused with the tax implications of this. I know that California has a reverse other state tax situation with Oregon, but i am still a little confused to the actual application of this.

1. Does this mean the I would pay Oregon income tax, and the other state tax credit would reduce what i owed California therefore getting a refund back in the amount that Oregon would tax me?

2. Is this credit applied in the same year, or would I have to double pay state tax and wait for the credit to be applied the following year?

3. Would I need to have both income taxes deducted from my paycheck rather than paying Oregon when taxes are due?

I don't know if my questions make sense, but I appreciate any and all help/advice.

Thanks

[MonikaK1 · Accepted solution]

If you are a permanent resident of Oregon and working temporarily in California, then you will pay taxes to both states. However, California allows Oregon residents to claim a credit for taxes paid to Oregon.  So, yes you should have taxes withheld for both states in order to ensure that you cover your potential liability. 

You should prepare your Oregon state tax return first so that you have the information you need to report on your California state return to calculate your Other State Credit for the amount paid to Oregon that would otherwise be double-taxed. So, even though you paid tax to two states in 2024, you can claim a credit in 2025 on your 2024 California state return to reimburse you for any amount double-taxed.

This is an unusual situation based on agreement between the states. In most cases, taxpayers prepare their nonresident return before their resident return.

Nonresidents of California may claim a credit only for net income taxes imposed by and paid to their states of residence and only if such states do not allow their residents a credit for net income taxes paid to California.

California nonresident individuals, estates, or trusts that are residents of one of the following states or U.S. possessions and paid a net income tax to that state or U.S. possession on income that is also taxed by California may claim the other state tax credit:

Arizona (AZ), Guam (GU), Oregon (OR), and Virginia (VA).

California nonresidents who are residents of any state or U.S. possession not listed may not claim this credit. This credit is not allowed on a California group nonresident tax return.

See this California Franchise Tax Board webpage for more information about the California Other State Tax Credit.

[dmldillard]

Hi 

Still a little unclear on a few things. So does this mean that I would pay both taxes out of my paycheck (2024) but then would have to wait a year to get credit on the double taxed amount (2025). Or would I be able to apply the credit in the same tax year?

Also is it possible for both states to claim me as a resident as I would be spending approximately 150 days in California a year and renting a studio for when I work?

Thanks so much for answering my other questions and hopefully these ones as well. 

[MonikaK1]

Yes, you get the credit for taxes paid to another state when you file your return the next year. You could also opt to reduce your state taxes withheld but you run the risk of owing additional tax next year instead of getting a refund of amounts double-taxed.

You can't be a permanent resident of two states at the same time. Your residence is in the state where you have your primary residence and other more permanent connections. Based on your description of the facts, Oregon appears to be your state of residence.

According to the California tax agency, you’re a resident if either apply:

• Present in California for other than a temporary or transitory purpose
• Domiciled in California, but outside California for a temporary or transitory purpose

According to the Oregon tax agency, you're a resident if:

• You think of Oregon as your permanent home.
• Oregon is the center of your financial, social, and family life.
• Oregon is the place you plan on coming back to when you're away.

You're also considered to be an Oregon resident if you maintain an Oregon residence and spend more than 200 days in the state during the tax year. You're still a full-year resident if you temporarily move out of Oregon, and then move back.

@dmldillard