If I live in Michigan and I am MI resident but work remotely for a company in California, do I need to pay California taxes?

[LenaH]

No. You have zero sourced wages to California because the income is sourced to your home state of Michigan. Sourced income means that you physically earned the wages in that state. Per the State of California, you are only responsible for state income tax if you performed services in California for wages. 

However, you will have to file a nonresident California return if your employer withheld California state income tax from your wages. In this scenario, California will give you a refund of taxes paid and your home state of Michigan will tax you on the income. Depending on your underpayment to your home state, you might be subject to a penalty. It would be best to have your employer withhold Michigan tax if you continue to plan on telecommuting.

[Hal_Al]

It depends on what "work... for a company" means.  If you are a regular W-2 employee; then no, you do not need to pay CA income tax.

If you are independent contractor, e.g. you get a form 1099-NEC, then yes you are subject to CA tax and must file a non resident CA return.  MI will also tax that income, but give you a credit, or partial credit, for the tax you pay to CA. 

[stw108]

i live and worked in michigan in 2021   i received a w-2  from a lawsuit settlement from a previous employer in california    from 2017    the lawsuit too years to finish.    do i need to file in california also?   the w-a2 was gross 1,250$

[DawnC]

Maybe.   Does the W-2 you received from the lawsuit reference CA in the state tax section (boxes 15-20)?    If so, yes, you will need a nonresident CA return to report the California sourced income.    The link has instructions if needed.   @stw108

This does not apply if you are not otherwise required to file a federal tax return.   

[stw108]

yes  15-20  have  state wages   state income tax   etc        i was wondering because  my refund is $7  and it costs 49$ to file

[JillS56]

You could check on the CA State Income Tax website and see if they have a way to file directly with the state and then you would not have to pay the $49 state filing fee.   

[sivam25]

I am resident of Michigan and stayed in Michigan for entire 2021.  I worked in MI company till March 2021 and have W2.  I joined a company in California by April 2021 and became regular W-2 employee of that company.  I never visited CA in 2021 though and continue to stay and own home in MI and worked remotely.  CA company issued me a W2 with CA employer state ID with my CA wages and they have deducted CA tax.  In this case, should I pay CA tax for CA income in the CA w2 or should I get full refund of CA tax and pay MI tax for both MI and CA income from both W2s.  Appreciate your clarification.

[LenaH]

If a California nonresident receives W-2 wages for work performed out of state, even if it's from a California employer, the income is not subject to California income taxes. Therefore, you would file a nonresident California return with zero sourced wages to get a refund of taxes paid to California. You are responsible to pay your resident state of Michigan for all of your income. 

@sivam25

[sivam25]

Thank you very much LeenaH.  

Will Turbotax that I will use to file returns take care of this scenario (filling zero income for CA and ask for full refund of CA tax deducted in W2)  automatically when I upload two W2s one from CA employer (covering April to Dec) and another from MI employer (covering Jan to March). 

Can you please let me know what kind of question Turbotax software ask me while filing so that I will be careful in answering that question and not skip that question by any chance?

I assume Turbotax software will fill CA adjustments - Nonresidents or part-year resident form CA(540NR).  I would assume Turbotax should input zero in Part II- sectionA-Income-1(wages) in column E for CA Amounts (income earned or received as a CA resident and income earned or received from CA sources as a nonresident). 

But the instruction for the same line says "Full-year nonresident: A nonresident is only taxed on income derived from California sources. Follow the “California Nonresident Amounts”
instructions for each line below. California nonresident amounts – If you worked in California while a nonresident, enter the wages, salaries, tips, or other compensation received for those California services."

Just want to confirm that if above line will force or not Turbo tax to fill my W2 wages from CA employer with CA employer ID in Part II- section A-Income-1(wages) in column E?

[LenaH]

No, TurboTax cannot determine the amount of sourced income you have from California. You will have to go through the screens and enter 0 in the California income allocation boxes. 

For example, when completing your California return, you will come across a screen titled Did you earn all of your income in California? On this screen, you would say No, I earned all or some of it in a different state and then enter 0 in the box. I have attached a screenshot below for additional clarification. 

If you have any other income, you will also be asked to allocate any California amounts. I have attached a screenshot below for additional clarification.

The amounts entered on the California screens will be used to populate the 540NR. 

Please see How do I file a nonresident state return? for more information. 

@sivam25