Taxes for working remotely for a company in California, but living in Massachusetts

[anuragsrm]

I recently got a new job in California(CA). I'm currently living in Massachusetts(MA) and don't plan to relocate till mid-late 2021. My wife is employed at a company in MA and will be continuing work here for the rest of 2021. Couple of questions:

- for w4 withholding should I withhold based on CA only - company allows withholding based on either CA or MA, not both. Would I get state tax credits for all/most of my MA tax owed since the CA state tax rate is higher ?

- would there be any issues filing jointly with my wife given our complicated situation - would her income get taxed at the CA rate in any case ?

[JotikaT2]

Yes, you can do the W-4 for California only.  You will be able to claim a credit on your Massachusetts return for any taxes paid in California while you were still a resident of Massachusetts.

This would ensure you are not taxed on any income twice in in Massachusetts as it will already be taxed in California.  

As far as your filing status, you can absolutely file jointly for federal and Massachusetts.  How you file your California return depends upon if you make the move to California or not during 2021.  If you do not move, you will be able to file in California separately as a nonresident and only report your income.

If you do move to California, you will need to use the same filing status as used on your federal return.  You would need to report the income from your wages and her wages, but will be able to claim a credit in California for any income also taxed by Massachusetts.  Once you become a resident of California, your income, regardless of state source, will be taxed on the state income tax return as you would not be considered a resident of the state.

[TomD8]

If you move during 2021, for tax year 2021 you'll file as part-year resident in each of the two states.

If you're a W2 employee, your remote work earnings are not taxable by CA until you become a CA resident.  CA does not tax non-resident remote W2 workers.  Your earnings remain fully taxable by MA until you establish CA residency.  So you should withhold for MA prior to your move, and CA after.

CA requires that you use the same filing status on your CA return that you use on your federal return (there is an exception for military).  CA is a community income state.  That means that your income for CA tax purposes after you become a CA resident will be split equally between you and your wife, and will be considered CA-source income.  You can request the CA part-year resident tax return instruction booklet here:

https://www.ftb.ca.gov/forms/Search/Home/FormRequest/4311

You become a CA resident for tax purposes when you begin living in your new permanent home in CA.      

[maddygracee]

Hello-

I currently live in CA and my current company closed their CA office in May 2021. I am now working remotely for the same company and they are based in MA. I am only paying CA State Income Tax and paying MA State Income Tax, MA Paid Family Leave, and MA Paid Medical Leave. Should I not be paying into the MA Paid Family Leave since I don't live in MA? 

How do I file taxes this year?

[DaveF1006 · Accepted solution]

According to this Mass DOR website, you do not need to reside in Massachusetts to take advantage of Paid Family Leave, and MA Paid Medical Leave offered by your employer.

[TomD8]

@maddygracee —

But you should NOT be paying Massachusetts income tax, if you’ve never physically worked inside MA.  MA does not tax nonresident remote workers, unless the person was previously working in MA and switched to remote work because of COVID.  So if this doesn’t apply to you, and if your work will be carried out entirely from a CA location, you should ask you employer to cease withholding MA taxes.

Your income is of course 100% taxable by your home state of CA.

[maddygracee]

Good to know! Do I need to pay into CA SDI in order to get leave benefits since I live in CA - or would I just take advantage of MA benefits since I am paying into it?

[ErnieS0]

@maddygracee Contract your employer. If you are a California resident living and working in California, your employer should be withholding state disability insurance (SDI), unless you are an employee not covered by SDI, such as someone who works for the government, a nonprofit, a railroad or are a domestic worker.

The State Disability Insurance (SDI) program and contributions are mandatory under the California Unemployment Insurance Code for almost all employees.