Live In Texas, company in CA. What does my employer need to do?

[Snickers44]

I am trying to prepare for my 2022 taxes (2021 tax year) situation since I moved at the beginning of the year to Texas (1/1/2021).

I work remotely for a company in CA (small company) whos work is mostly b2b with other companies in CA.

I fly there somewhat often to go do site visits, but most work/communication (80-90%) is done online. 

I have read posts such as:

https://ttlc.intuit.com/community/state-taxes/help/do-i-need-to-file-a-nonresident-return-for-an-out...

and my understanding is that I dont need to be paying CA taxes. However I have been since my employer isn't sure how to make that happen without having a "nexus" there.

I understand that I will have to file as a non-resident for the time I was paying CA taxes, but I am not too sure on my company's side what needs to be done in order to get it switched to Texas or if that is possible?

So my question is more along the lines of what do I need to tell my employer to do?

This is a bigger deal than just making sure I am not paying CA taxes because I have a fair amount of capital gains that I want to make sure I am not paying the CA capital gains rate on.

Thanks for any help!!

[ErnieS0 · Accepted solution]

It’s up to your employer—not you—to decide whether they should withhold California income tax on your pay.

California defines a resident as any individual who meets any of the following:

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

A nonresident is any individual who is not a resident.

To be a Texas resident, you will have to change your domicile from California. The Golden State defines this as:

• Abandonment of your prior domicile.
• Physically moving to and residing in the new locality.
• Intent to remain in the new locality permanently or indefinitely as demonstrated by your actions.

You would be a Texas resident if you took steps to establish residence in Texas, including registering your vehicles, obtaining a driver’s license, registering to vote, changing the addresses of your banking accounts or opening new accounts in Texas and using professional services such as doctors and dentists in Texas.

Your employer will probably want you to fill out an EDD Form DE-4 form, claiming exemption from withholding.

If you are a Texas resident, you are still taxed by California on income earned during the days you worked in the state for your employer.

Related Information:

• 2020 Guidelines for Determining Resident Status

[Snickers44]

Thanks for the reply Ernie.

I am currently living in Texas and am in the process of registration, DL, etc to establish residency.

It sounds to me like the easiest thing will be to have my CA taxes taken out and then file non-residency to get those taxes back?

"

If you are a Texas resident, you are still taxed by California on income earned during the days you worked in the state for your employer.

"

In response to that, you are saying I may need to pay taxes for the 30/365 days of the year that I am actually in California?

[LenaH]

It depends. As a nonresident of California, you would only have to pay income tax for income that is California sourced. Sourced income includes income from performing services in California. It would not include services performed in Texas for a California based company.

In addition, per the FTB, you will only need to file a nonresident return if you have sourced income in the state and your California income is above a certain amount. I have attached the income guidelines below.

If your sourced income for 30 days is above the amounts for your filing status, then you would have to file a nonresident return. If not, then generally, you would not have to file. If you do not have a filing requirement, then I would advise not to continue to withhold California income taxes from your pay when you are a Texas resident. 

For more information, please see 2020 540NR.

@Snickers44

[LTellers2023]

I'm in a similar situation, still not sure of my liability though. 

1. Moved to Texas, selling CA residence and setting Texas as our domicile. 

2. Company is international, with a US sub based in CA. I currently work remotely in the field, majority of work is in CA, but also work across US. 

3. Will work 70-75% of time remotely from TX, pay is still issued from CA. 

If I'm reading correctly, as long as my pay is issued from CA I am subject to CA taxes. 

Is that right? 

[NCperson]

@LTellers2023 - no - it's not where you pay is issued from that matters, it's where you physically do the work that matters. So the days you are in TX are subject to TX laws (no income tax), but the days you are working in CA are subject to CA income tax. 

I assume you are a W-2 employee. 

[LTellers2023]

@NCperson, 

Thanks for the reply. 

I work in the field, and my workload is split up between a few states (mostly west coast) and Canada. I will be based in Texas and could go to any of those sites for work. 

If I read this right I will need to track my days when I work in CA and report that ?

I am W-2, salaried employee.   

[NCperson]

yes, tracking the days you are working in each state is important. 

[TomD8]

@LTellers2023 --

To elaborate on @NCperson's answers:  the concept here is one of income sourcing.  W-2 income is sourced where the work is actually (physically) performed.  States that have an income tax - such as CA - can tax non-residents on income sourced to their state.  The fact that you live in a state without an income tax does not exempt you from being taxed as a non-resident by other states.

So it's a very good idea for you to keep a year-long log of the days you work in states with an income tax.  A log like that will make things MUCH easier for you at tax time next year.