Live in CA, Telework for AZ Office

[Anonymous]

I will be moving to Arizona in the coming months, I'm currently living in California and teleworking. Employer is withholding AZ taxes. I'm assuming that I will be subject to CA income taxes until my residency and domicile changes back to AZ.

I will need to file part year resident forms for both states. Since I am working for AZ currently, I'm assuming that even though I am not yet an AZ resident again, because the employment is AZ based, AZ still receives the taxes on this AZ income, but I also owe CA taxes on the income because I am a CA resident. 

It seems that AZ does not allow a tax credit for taxes paid to CA and CA does not allow a tax credit for taxes paid to AZ - am I just out of luck and going to be double taxed?

[TomD8]

As long as you are a CA resident, all your income is taxable by CA regardless of its source.

An individual domiciled in AZ is subject to CA taxation only on CA-source income.  Thus if your domicile is AZ, and you physically work only in AZ and are a W-2 employee, that income would be taxable only by AZ, and not by CA.  (W-2 income is "sourced" where the work is actually (physically) performed.)

An individual who is a CA resident but physically works in AZ would have income taxable by both states.

AZ and CA are "reverse-credit" states.  That means that such an individual would claim a credit on his non-resident AZ state return for taxes paid to his resident state of CA on the portion of his income which is taxed by both states.  Hence no double-taxation.

"Reverse-credit" because in most cases the "other state credit" is granted by the resident state.  CA and AZ are an exception to that rule.

[Anonymous]

There is no non-resident return. I will have to file part year resident for both states.

[TomD8]

"It seems that AZ does not allow a tax credit for taxes paid to CA and CA does not allow a tax credit for taxes paid to AZ ..."

Part-year residents are also subject to Arizona tax on any income earned during the portion of the year they were an Arizona resident, and on any income earned from an Arizona source before moving to (or after leaving) the state. Individuals subject to tax by both Arizona and another state on the same income may be eligible as well for a tax credit on taxes paid to the other state.

https://azdor.gov/individual-income-tax-filing-assistance/determining-filing-status-non-residents-pa...