Moved States mid-year 2020

Forum|Forum|5 years ago
April 22, 2021
3 replies
16 views

Hello,

I have a lot of moving parts here so please bear with me:

My husband and I moved from California to Arizona mid-year (our AZ least started August 1st). Neither of us have worked in Arizona at this point. We both continued to receive unemployment benefits from California. I also continued to teach remotely on occasion which I was paid for with 1099-NEC (Most, but not all, of the income on that was earned while living in CA). I am also a professional actress so I receive multiple W-2's for residuals for TV work that I did prior to 2020 (none of these W-2's are for jobs worked in 2020).

Also, my husband cashed out his 401K this past December while we were living in AZ. His employer was offering an option to withdraw early with no penalty due to Covid, and we had the taxes withdrawn when we cashed it out. When entering my info for CA on TurboTax (haven't done AZ yet, and haven't e-filed), it asked us if we were living in AZ when receiving the 401K cashout, to which I answered yes, but then when checking for errors it needed me to fill in the full amount in Box 11E of 1099-R.

Advice? I haven't even started filling in AZ yet. Should I file the federal and both states at the same time, or do I need to file one state first?

I've always had complicated taxes due to being an artist and teacher, and have always done my own with TurboTax, but this year is making my head spin!

Thank you for your help,

Lisa

Hal_Al

Level 15

There is no box 11E on a 1099-R. https://www.irs.gov/pub/irs-pdf/f1099r.pdf

Q. Should I file the federal and both states at the same time, or do I need to file one state first?

A. You should prepare your non-resident (CA) state first. It doesn't matter when you file them.

Any 1099-NEC income received from a CA entity, even if received while living in AZ, is taxed by both CA and AZ. AZ will give you a credit for tax paid to CA. Reference: https://www.coblentzlaw.com/california-office-of-tax-appeals-gives-precedential-authority-to-bindley-decision-nonresident-sole-proprietors-out-of-state-services-to-california-customers-could-trigger-california-filing-requirem/

The residual W-2 income is allocated to the state you lived in when you actually received the income.

The 401k distribution is taxed only by AZ (where you lived when received).

CA unemployment is taxed based on where you were living when received. So, some to both states.

TomD8

Alumni - Champ

I would add some comments to @Hal_Al 's answer.

CA does not tax unemployment compensation. So you don't have to allocate any of your unemployment compensation to CA.

For tax year 2020, AZ has adopted the federal $10,200 exclusion for unemployment compensation.

CA and AZ are "reverse-credit states." That means that, if you have income taxed by both CA and AZ, your non-resident state will give you a credit for taxes paid to your resident state on that income. (Normally it's the resident state that gives the credit - hence the term "reverse" in this instance.) So in this case you would want to complete your home state return first, before you do the non-resident state return - the reverse of the usual sequence.

Your W-2 residual income is taxable by your state of residence at the time you received it, but it is possible that the state(s) where you earned it may expect you to file a return as well, particularly if your W-2's show taxes withheld by the "other" state(s).

**Answers are correct to the best of my ability but do not constitute tax or legal advice.