CA permanent resident worked remotely from Hawaii for 2 months

[mrdi]

Will I be double taxed if I am permanent resident in California, and worked from Hawaii for 2 months?

[TomD8 · Accepted solution]

You won't be double-taxed.  Here's how it works:

The income you earned while working in Hawaii is considered Hawaii-source income, and is taxable by Hawaii.

ALL your income, including that from Hawaii, is taxable by your resident state of California.

Therefore at tax time you must file both a non-resident HI tax return (reporting your income from HI) and your normal CA resident tax return (reporting all your income, including the portion from HI).

You'll be able to take a credit on your CA return for the taxes paid to HI, so you won't be double-taxed.

[mrdi]

So even if my employer/paychecks are in California,  it is still considered as Hawaii-source income, just because I work remotely in Hawaii?

[mrdi]

Also do you know if TurboTax can handle, taxes cross more than one state? Or do I need to pay to an adviser, for this filing? 

[TomD8]

If you do the work in Hawaii, it's Hawaii-source income and taxable to Hawaii.  Employer location doesn't matter.

And yes, TurboTax can handle multi-state returns.  Multi-state tax situations are very common.

[roadbiker1]

@TomD8- Do you know the involvement the employer plays with regards to withholding taxes for Hawaii for a salaried W-2 employee? If the person works from Hawaii for 2 months or less does their employer need to do anything (or even know) or can you just fill out the nonresident form and pay taxes on the prorated salary you received while working there.

[ErnieS0]

Your income is taxable to both California AND Hawaii unless you abandoned your CA residency and became a HI resident for two months. 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.

CA residents are taxed on income earned everywhere.

File a nonresident HI return and report income earned in HI for two months.

File a resident CA return, report all income and claim a credit for tax paid to HI.

You probably should tell you employer that you were going to work outside the state for two months. However if this was your decision, they may not be willing to change your withholding for a short period of time.

Related Resources:

• Guidelines for Determining Resident Status.
• Teleworking from paradise may sting come tax time

[roadbiker1]

@ErnieS0 - thanks for your response. I guess the crux of the issue is I’d like to figure out how to avoid involving my employer since it’s just a short amount of time. I believe there are some rules at which point the employer is required to withhold taxes but it’s not clear to me if there are exceptions for shorter timeframes. 

[ErnieS0]

Are you working on 2020 or 2021? If this is 2021, you can leave your withholding unchanged and make a quarterly estimated tax payment to Hawaii in the quarter you are away from California.

File Form N-200V.

If you are using the Hawaii program for 2020 you can prepare estimated taxes within the Hawaii section.

[roadbiker1]

@ErnieS0 - this would be for 2021. I like the idea of making the estimated tax payments. My worry is only that the state of Hawaii might somehow involve my employer. 
However, I just found https://files.hawaii.gov/tax/news/pubs/20BkltA.pdf section 11a seems to imply if I work for 60 days or less the employer does not need to withhold. 

[tmsweatt]

Hi @ErnieS0 

In my case I will be permanently moving to Hawaii from California in January at the end of my current lease.  But I will work remotely in Hawaii for 6-9 months for my CA based company. 

I think this would be considering "abandoning" my CA residence. Would I file non resident for CA and resident for HI. Would I be double taxed at all or similar case with the tax credit?

Thank you! 

[TomD8]

@tmsweatt --

If you’re a W-2 employee, once you establish your new domicile in Hawaii, your remote work income done from a Hawaii location is taxable only by Hawaii.  It is no longer taxable by California.

You establish your domicile in Hawaii when you begin living in your new main, primary home there (temporary lodgings such as a hotel don’t count).

if you move after January 1st, for 2022 you would file a part-year resident return for each of the two states, assuming your CA income exceeds the filing threshold.

Once you establish your HI domicile, CA can only tax income you earn from work actually (physically) performed in CA.