California State Tax for a Non-Resident

[toshi-minoura]

We live in Oregon and have a rental house in California.
We have TurboTax for Oregon.
Do we need TuboTax for California to prepare the state tax return for California?

How the state tax for California is computed?

Is it computed roughly as
Tax on Calif AGI with the rental income - Tax on Calif AGI without the rental income?

[KatrinaB48]

Yes, you will need t file a California non-resident state return. It is important to file this return first to properly allocate income.  

The state where you live (your resident state) will tax all your income and will give a credit for taxes paid to the non-resident state on the resident state return so you are not double taxed.

In order to receive a non-resident state tax credit follow these steps:

1. Enter your non-resident state information first.
2. Enter your resident state information next.
3. Check to make sure you choose the resident state long form.
4. On your resident return summary screen, you'll see a credit for your non-resident state taxes.

If you created your resident state return before you began work on your nonresident state return, TurboTax will not pull over any tax amounts (credits) from your nonexistent nonresident state return.

To resolve this issue, you will need to remove your resident state return and then create a new resident state return. Doing this has the same effect as entering your non-resident state first, which is how the returns should be entered.

Depending on your state, resident and non-resident incomes may be allocated automatically according to your Wages & Income entries on your federal return.

In some cases, we'll prompt you to allocate income between your resident and non-resident state. If asked to do so, you will allocate your rental income to California and your other income to your resident state.

[toshi-minoura]

I now have TurboTax for Federal and Oregon installed.

Do I have to buy TurboTax for California and have to install it? TurboTax for Orgon is already installed, and data have been added. Can I install TurboTax for California?  If so, are TurboTaxes for Federal, Oregon, and California integrated into one piece, and are the data for the two states as well as Federal stored in one file?

[DianeC958 · Accepted solution]

Yes, you can install the California state return.  

Yes, TurboTax integrates the Federal, Oregon and California returns.  You will need to allocate your income between the two states so that the correct income is taxed by the correct state.

Yes, the Federal and the two states are stored in one file.

Multiple States-Where to File?

@toshi-minoura

[toshi-minoura]

> To resolve this issue, you will need to remove your resident state return and then create a new resident state return. Doing this has the same effect as entering your non-resident state first, which is how the returns should be entered.

I have already entered the data for my resident state, but not for the non-resident state. Do I have to remove all the data for the resident state? If so, how can I do that?

Turbotax for the non-resident site is not installed yet. When it is installed, does Turbotax keep the data for the resident site  although the credit for the tax paid for the non-resident income is not entered?  I found that  the credit can be entered manually by using a form of the resident state.  Are the data that can be copied from the federal return copied automatically to the non-resident state tax return?

[DianeC958]

You do not need to remove all of the data, you just delete the state return and the data will be removed. 

To remove a state in TurboTax online you click on the Delete button next to the state.

Then add the second state and prepare the non-resident state first and the resident state last.  The program automatically calculates if you would need a credit for taxes paid to another state based on the information in your return.  

Depending on how states calculate your tax liability you do not always take a credit for taxes paid to another state.  With some states you are just taxed on the income earned in that state.  In those cases the credit does not apply.

Once you have completed the non-state resident return, then complete the resident state return.  The information from the Federal will flow through to the state returns.  You may need to make some adjustments that TurboTax will walk you through.

[lizablaney]

how do I "remove the state tax form"? I live in CA. My son lived in NC and NY in 2020. He has not returned to CA.  But turbotax has created a CA tax return for him with zero everything.  If I efile, will it charge me for this? He hasn't lived here since 2/26/2019.

[BillM223]

You and your son have two different TurboTax Online accounts, don't you? It should not matter that you live in California to your son's return.

This suggest that something on your son's return is connecting him to California. For example, if he filed a tax return years ago with California information, some information carries over, and you can delete it if it is no longer pertinent.

Also, if you have a W-2 with withholding for California - or even just if the state code for CA is present without anything else - this may trigger a California return.

Get your son to open his return (I assume it is Online). Click on State Taxes at the top. Get to the next screen by hitting Continue, then use the delete button to kill the state.

If you are using the CD/download software, then when you are somewhere on the federal return, click on File on the upper left, then in the middle of the list, click on Remove State Return.

[lizablaney]

I have the CD version.  If I remove the state return on File menu, won't it remove all three. He lived in NC and NY but not CA (where I live) in 2020. 

I am thinking of handling it by just not clicking efile for california but clicking "I will file later".  The CA return actually correctly states no income and states the last dates that he lived in CA which was 8/18/17-2/26/19. I just don't want to pay for efiling something which is not required. 

One confusion may be that the company he works for has its accounting office in CA so that is the address on the W-2.  He worked in Charlotte NC office Jan-March, at home in Charlotte Apr-Oct, then in NYC Nov-Dec.  The W-2 shows state earnings in NC and in NY.  It does not mention CA.  So that would be a turbotax bug if that is the reason.

Thank you for your help.  I appreciate having someone to talk this over with.

[MarilynG1]

@lizablaney It sounds like you are Married Filing Jointly, but your husband may need to file a North Carolina Resident return and a Non-Resident New York return if he was there only temporarily for work. 

Click this link for info on How to File a Non-Resident State Return.

If you are a California Resident but have no income/tax paid to report, you are correct that you don't need to file.  You can delete California in the States section and retain your other states. 

Click this link for more in on How to Delete a State Return. 

Since you are filing separate state returns, click this link for more info on Filing Separate States. 

[Onefish]

I need to file a CA return only to get withheld taxes returned.  My wife and I are full-year non-residents. She receives W-2 income as well as some interest from a California firm. The W-2 income does not work done in CA so there should be no tax due to California; just a refund of the withheld taxes. No other income is CA income. (We pay taxes on that income in our now home state.)

Having just gone through the CA return step-by-step the final result is us owing a relatively small amount tax to CA--that's clearly incorrect; we should be getting 100% of the withheld taxes refunded.  Is the step-by-step process somehow treating the income not earned in CA as CA earned income?

One odd place the return is balking is on the Sch. D worksheet for non- and part-year residents. We have a net capital loss of $3000. The form starts with a large loss, which of course is limited to $3000. Then it asks questions designed to show how much was CA source. None of it is a CA loss but the form won't accept my answers.  And it gives no clue for what the answers should on the worksheet should be.

I've been filing a very similar return for the past 2 years since leaving CA. Have not had a problem with this before.  Any help would be appreciated.

[toshi-minoura]

California  State tax for a nonresident is computed by using the form "California Adjustments -- Nonresidents or Part-Year Residents Income within form CA (540NR).  The computation is complex, but my understanding is that the tax amount X is computed assuming  that the nonresident is a resident.  Then the tax amount Y is computed after subtracting  the income of California Sources earned by the nonresident. The amount of the income tax for the nonresident is X - Y.

In order to prevent double taxation credit is handled in two ways. Each state specifies which method should be used.

(Ordinary Credit) A nonresident can subtract the tax amount paid to California from the tax amount paid to the  state of residence as credit.

(Reverse Credit)  If a nonresident  lives in one of the "reverse credit” states, which include Arizona, Washington D.C., Oregon, and Virginia, the tax amount paid to the state of residence can be subtracted from the amount paid to California.

If the nonresident income is less than the credit, the nonresident income is made 0.

I think Turbotax  performs this complex computation correctly.

If you are willing, Section 18002 of the Revenue and Taxation Code (R&TC ) of California can be referred to.

[toshi-minoura]

Correction

Each state specifies which method should be used.

==>

Each pair of states specify which method should be used.

the tax amount paid to the state of residence can be subtracted from the amount To Be paid to California.

==>

the tax amount paid to the state of residence can be subtracted from the amount To Be paid to California.

[Onefish]

@toshi-minoura 

Thanks, but the problem was that TT was showing the W-2 income as CA income when in fact it's not. It's an odd situation; the program seems to assume that a W-2 from a California employer automatically assumes that it's CA income. So all I had to do was remove the income as earned in CA and the program worked fine.

Thanks for the explanation.

[toshi-minoura]

> If you created your resident state return before you began work on your nonresident state return, TurboTax will not pull over any tax amounts (credits) from your nonresident state return.

Oregon and California agreed to use Reverse Credit, so the income tax computed by the resident state (Oregon) is applied as credit to California's nonresident income from the rental house which  often becomes $0.

> To resolve this issue, you will need to remove the resident state return and then create a new resident state return.

A s Reverse Credit is used, the income tax of the resident state (Oregon) is not affected. Do not remove its tax return.

> Doing this has the same effect as entering your non-resident state first, which is how the returns should be entered.

The state tax forms  for the resident state should be completed to make the credit passed to the forms of the nonresident state. If you use 2021 Turbotax, the changes of data in the federal tax forms and/or resident state tax forms  are automatically passed to the nonresident tax forms although some previous entries must be revisited.

> Depending on your state, resident and non-resident incomes may be allocated automatically according to your Wages & Income entries on your federal return.

The rent income  is automatically allocated to the state based on the address of the rental house.

> In some cases, we'll prompt you to allocate income between your resident and non-resident state. If asked to do so, you will allocate your rental income to California and your other income to your resident state.

A capital gain can be assigned two or three ways. One way is to compute it based on the number of days your lived in the nonresident state and that you lived in the resident state.