How to estimate state withholding amounts if filing for two states?

[Anonymous]

I live in California but work remotely for a company based in Pennsylvania. My question is about withholding taxes for these two states:

Currently, my employer withholds state taxes for both PA and CA. Since PA has a lower tax rate, it makes sense to withhold the full amount for PA. However, for CA, much of the withheld amount is based on double-counted income and thus ends up as refunds in my tax returns.  This feels like wasted money to me since I could have accrued interest on them throughout the year. 

So my question is, should I ask my employer to withhold a lower rate for CA? If so, how do I calculate what they lower rate should be? (Do I just estimate it based on the total CA tax, or is there a more accurate way?)

[DMarkM1]

You are correct in that two states should not be withholding on the same income under normal circumstances. 

In your situation your employer should not be withholding PA taxes.  Here is the PA reference.  Your resident state, CA should be withholding for your work for the PA company, while in CA. 

You will, as in the past, need to file the non-resident PA return to get the taxes already withheld in 2022, but going forward that should not be the case.  

Work with your employer to correct your withholding states.  

[Anonymous]

Thank you for your response! But to clarify, even though I work remotely in CA, I am not required to do so. That means I still need to pay PA taxes, right? Wouldn't I need to withhold both PA and CA taxes then?

[DMarkM1]

Possibly, but you would need to consider under what company policy are you working from home?  Or maybe better asked, What is the company policy for telework? 

At this point there are not very many employee convenience situations for working from home.  

Is it along the lines of employees who are not required to be in the office should remain working from home?  That would indicate that if you are not required to be in the office then you are required to work from home. 

Are you working from home due to your health situation or for childcare?  For childcare that is your convenience but health is not.  

[Anonymous]

My company's policy for working from home is that I am free to come into the office, but it is not required. So I'm choosing to work remotely (no special reason like health).

[Vanessa A · Accepted solution]

Than can't withhold less. Since you are saying you get most of it back but not all of it, you still have a tax liability when it is all said and done so you cannot claim exempt. If you look at the CA Employee's Withholding Allowance Certificate you will see that you can have an additional amount withheld, or you could claim a full exemption, but you cannot request to have less withheld based on credits from other states. 

[Anonymous]

Ah, this is exactly the answer I was looking for. Thank you so much!

[Marylisaa]

To estimate  state withholding amounts when filing for two states, first determine each state's tax rates and rules for non-residents or part-year residents. Calculate your total income and allocate it based on the time spent or the source of income in each state. Use the appropriate withholding tables or calculators provided by each state’s tax authority to estimate the withholding amounts. Ensure that you also consider any credits for taxes paid to the other state to avoid double taxation.