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Multiple States

I live and work in California as an independent contractor for a Pennsylvania company.  PA State taxes were withheld and reported on my 1099-MISC. Do I have to file in both states?

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TomD8
Level 15

Multiple States

You must file in CA.  CA taxes its residents on all their income, regardless of where earned.  Since PA income tax was withheld on your 1099-MISC, you will have to file a PA non-resident tax return as well.

 

Whether your income is actuallytaxable by PA is another question.  PA follows the "Convenience of the Employer" doctrine with regard to PA-sourced compensation paid to non-residents.  (PA regards 1099-MISC income as "compensation.")  Simply stated, that means that if you are working in CA for your own convenience, rather than that of your employer, your compensation is taxable by PA as well as by CA.  But if you are working in CA for your employer's convenience, your income is taxable only by your resident state of CA.  For a detailed explanation of this concept, scroll down to The Convenience of the Employer Doctrine in this reference:  https://www.revenue.pa.gov/FormsandPublications/PAPersonalIncomeTaxGuide/Pages/Gross-Compensation.as...

 

 If you and your employer determine that your CA work location is for the employer's convenience, you would enter zero PA income on the PA return, in order to obtain a refund of the (in that situation) incorrectly withheld PA taxes.  

 

But if your CA work location is for your convenience, your income is taxable by both states.  In that situation, you'd be able to take a credit on your CA return for taxes paid to PA, so you wouldn't be double-taxed.

 

In TurboTax, be sure to complete the non-resident (PA) return before you do the home state return.

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

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1 Reply
TomD8
Level 15

Multiple States

You must file in CA.  CA taxes its residents on all their income, regardless of where earned.  Since PA income tax was withheld on your 1099-MISC, you will have to file a PA non-resident tax return as well.

 

Whether your income is actuallytaxable by PA is another question.  PA follows the "Convenience of the Employer" doctrine with regard to PA-sourced compensation paid to non-residents.  (PA regards 1099-MISC income as "compensation.")  Simply stated, that means that if you are working in CA for your own convenience, rather than that of your employer, your compensation is taxable by PA as well as by CA.  But if you are working in CA for your employer's convenience, your income is taxable only by your resident state of CA.  For a detailed explanation of this concept, scroll down to The Convenience of the Employer Doctrine in this reference:  https://www.revenue.pa.gov/FormsandPublications/PAPersonalIncomeTaxGuide/Pages/Gross-Compensation.as...

 

 If you and your employer determine that your CA work location is for the employer's convenience, you would enter zero PA income on the PA return, in order to obtain a refund of the (in that situation) incorrectly withheld PA taxes.  

 

But if your CA work location is for your convenience, your income is taxable by both states.  In that situation, you'd be able to take a credit on your CA return for taxes paid to PA, so you wouldn't be double-taxed.

 

In TurboTax, be sure to complete the non-resident (PA) return before you do the home state return.

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