We moved out of CA in 2015. I work freelance for many clients all over, including my home state of GA, as of 2015. That year we were able to do both state taxes and it nicely divided what we did in each state so we could pay accordingly.
Since that time, in 2016 as full time GA residents, I've worked on projects for clients from all over, besides, CA, including NC, TN, VA, and Arizona. Never in my life have I been asked to file tax returns as a non resident in any of those states just because I got a 1099 from a person or company in that state. Only CA.
I just received a letter from FTB State of CA asking for my 2017 because I have a 1099 from a person in CA. We paid GA taxes on this income already, as we do with all my 1099 income because I work from home and do all work in GA. Why would I also need to go through with filing CA taxes? If I were to follow that lead... I would have had to file taxes in 5 states that year just simply based on 1099s. Is this just CA? Is it because I used to live there or would all who got a 1099 from CA have gotten this notice including those who were never residents? I think in 2016 I made bout $150 from CA but on work done in GA. I guess they didn't notice? 🙂
It says if my hubby and I made over 34k we have to file (and that includes non CA sources. Which of course combined we did. But my CA amount isn't over 34k. Just "gross" of course, which means everyone would have to file for 2 adults income combined, ya know? But that doesn't seem to matter my CA amount is below.
There's also a question I'm not sure how to answer. It asked what gross income is from all sources. But is there a line item in TT that shows that? I only see AGI. And when I start looking at our grand totals on 1040 that year the 1099 line item shows the net after business write offs. How do I get a really strong accurate number when the paperwork is all over the place including a 3000 loss shown on that first page for a stock? Do we deduct that from the grand total?
Do I have to buy CA 2017 software, install it and pay for that plus filing fees? Just to find out if they'll double tax me? I've never heard of paying taxes in a state when you do the work in another. Even my teaching work for Universities that pay through W2 take out GA taxes on my behalf, not their home state taxes. I work for one in CA and one in VA. And both process my GA taxes for me b/c I do all online teaching from GA.
Any advice is greatly appreciated. They have given me a very tight deadline to actually fill out the questionnaire and the CA tax forms.
Don't file a return if you never lived in or worked in CA that year ... respond to the notice with that explanation or give them a call to the number on the notice. CA is soo broke that they are grasping at straws.
Can you check out this page:
Points of interest from their website:
Part-year and nonresidents
For part-year residents or nonresidents, California source income includes, but is not limited to:
A nonresident operating a sole proprietorship with California source income must file California Nonresident or Part-Year Resident Income Tax Return (Short Form 540NR) or (Long Form 540NR).
Let me know what you think based on what this site says. While it sounds like they DO require I file, I have no idea why on earth this can be legal for them to require me to pay double taxes on the same income. GA already got my tax money, naturally, on that income. I live here! They have a right to it. Just like CA gladly charged me taxes on my NC income when I was a resident of CA. (NC did NOT ask me to also pay them since I lived and worked in CA back then!)
But if what CA is asking for, is legal and they can charge us, what's to stop all the other states that have people who paid me from requiring me to file in their states too for that year or other past years? (TN, NC, VA and AZ to name a few.)
The last thing I want to do is give CA more info than they should have access to, either.
The magic phrase used on the site you posted is "California source income", (usually written as "California-sourced income"), which they conveniently don't define on that page.
Here's a non-authoritative site
that does though have a plain-English explanation of what that phrase means (emphasis added:(
California Tax Rules For Remote Workers
Generally if you work in California, whether you’re a resident or not, you have to pay income taxes on the wages you earn for those services. That’s due to the “source rule”: California taxes all income with a source in California. And for tax purposes, the source of income from services is the location where the services are performed. This is true even if you are a nonresident, even if the contract with the employer is made out-of-state, and even if the wages are paid outside of California.
You can imagine how important the source rule is for California’s taxing authority, the Franchise Tax Board, when it comes to actors and athletes. When LeBron James travels to California to play the Clips at Staples Center, California gets a cut of his pay for that night.
But what if the employee is a nonresident who doesn’t have to set foot in California to perform his services? Then the source rule works for the nonresident. Remember, the source of the services is the location where the work is actually performed. A nonresident programmer who monitors and upgrades satellite dish software for a Los Angeles-based media company, all while sitting comfortably in front of his computer in his Austin, Texas condo, doesn’t earn California-source income and doesn’t have to pay California income taxes.
My dad had found that article too and I really liked it... except it's too unclear about what this means for me in getting a 1099. It does sort of define that my W2 work is safe b/c I have no "duty days". But I also had no duty days on my 1099 so why do they get to tax that???
I'm at a loss on how to handle this. IF I buy CA tax s/w from Turbo tax for 2017 is the software going to understand how to calculate all this and what counts for what state? Does it mean my GA taxes will have to be redone for 2017 as well?
Critter, while I absolutely agree with you that this should NOT be considered CA income, they list receiving 1099 / Sole proprietor income as something that requires me to file non resident taxes with them. (see link below) My client is passing along some of my questions to her CA accountant. So maybe I can get some answers there too. But apparently this has become a problem for others besides me b/c CA is tired of losing income with so many moving out of state. But that shouldn't impact me! We moved 4 years ago. On purpose. To get away from their high rates.
But I can't understand why on earth this would be legal for them to require me to file. Even just the act of reopening a prior year's taxes to file costs a lot of time and money! Let alone if they decide I owe anything plus 16+ months of interest.
What do you think of this:
By the way... the accountant who filled out that 1099 thinks she may have been erroneous in sending my 1099 copy to the FTB in CA. Is that what caused this? If she hadn't forwarded that form to them, would this never have happened? Now how to get out of it... She's going to write me a letter to send back with the application but I don't know if that's enough based on the info on their own website.
It works like this:
Your home state can tax ALL of your income, regardless of where you earned it.
Other states (that have an income tax) can tax you as a non-resident on income you earned by actually working within that state. It doesn't matter if that income is reported to you on a W-2 or a 1099-MISC.
When you're taxed by both a non-resident state and your home state, you'll be able to take a credit on your home state return for taxes paid to the non-resident state. So you won't be double-taxed.
In many (but not all) states, a non-resident has to file a tax return only if their income in that state exceeds a certain filing threshold. Some states requiring filing by anyone who had to file a federal return. You can find a state's non-resident filing requirements on its tax website.
You are focusing way, way too much attention on the words "1099 income" and "sole proprietor." The absolute key to all this is understanding what "California-sourced income" is and YOU DON'T HAVE ANY based on what you've said.
If you're like most taxpayers it is highly likely that you've got some other "1099 income" too. Did you get a 1099-INT, or a 1099-DIV, or maybe even a 1099-B? If you did, I'll bet dollars to donuts that you aren't thinking that somehow this income also needs to be reported to California. But of course you most likely did get one or more 1099-MISCs and you are a sole proprietor, (which is the focus of the article), and you've psyched yourself out that now you might have to pay tax to California on your sole proprietor income and not understood the phrase "California source income".
"By the way... the accountant who filled out that 1099 thinks she may have been erroneous in sending my 1099 copy to the FTB in CA. Is that what caused this? "
100% "YES!" The California FTB got a 1099-MISC that states you have California-sourced income but you didn't file a California income tax return. BINGO, you get a dunning letter! (It leads me to question the competency of your accountant, but that's up for you to decide.)
The issuer of the 1099 has to send that form to the feds with the 1096 and the IRS shares that info with the states ... it gets disseminated ... they get it already so her sending the form just means the state got the info faster if they even looked at it ... since it was not supposed to be sent to the state they really don't know how to process it other then put it in the trash.
It's not my accountant who did this. It's the accountant of my client in CA. What she hired me to do wasn't a normal course of business for this person. An individual asking me to help her do something pay me for it. She flew to my state to talk to me about the project and I did it here. The accountant sent my form to FTB. My understanding from some of my other 1099 clients they are only required to send that form to Federal and the fact it was sent to any state was wrong. I just hope CA doesn't insist they see a tax return from me because of it since my client was CA based. 🙂 Here's hoping.
Critter, I assume you mean the fed gov share that info with the state of the contractor getting paid to make sure I pay on it, and not the state of the person who hired me. This is where CA should have never even seen that form to begin with. Only GA. That's the oddity that happened here. CA is definitely trying to crack down on money made from CA companies or people, out of state. But it all started b/c of state crossers who commute in and use their roads. That's definitely not me. 🙂
Thanks for all the help. I hope her corrected 1099 and letter will be enough to get them to go away. 🙂
As an FYI for all on this thread, I talked to the GA State Tax department today to see if they could help me understand what CA is looking for, because if I fill in their form it will automatically require I file taxes there even if in the end I don't owe them money. And according to GA, GA has the same filing requirement as CA. If you live and did 100% of the work from another state, like for example, MA, but someone pays you over $5000 from GA, you have to file GA tax returns (or if whatever you were paid from GA is more than 5% of your income.). She told me it doesn't mean you owe a dime of money to the state of GA, but they want everyone who gets paid by someone in GA to file a tax return here. Who does that?? Any given year I might receive $ for jobs I do in my home state from 5-6 states and it would never have occurred to me to check with each state about if I have to file a tax return working as a sole proprietor from home. CA doesn't seem to have a minimum $ requirement that I can find. But GA's is $5000 and over. When did this insanity start? And which states try to enforce this? While this never would have happened had my 1099 not been forwarded by the individuals' accountant to CA FTB... I find the whole situation a ridiculous hardship on people who don't owe other states but may need to file in other states just so they have their paper trail. Think of how many add ons to TT we'd have to buy at 44.95 a piece. Then filing of $25 per state after that? CA added this law in 2012. I don't know when GA did. But as much as i know they're wrong... I don't believe I can get out of filing. And they said I will be fined if I don't file by less than a month from now.
As others have explained, bottom line is that if you never physically worked in CA you have no CA-source income, and thus you have no CA tax liability. (Edit: The previous sentence is true for W-2 employees, but due to a 2019 court ruling, may no longer be true for 1099-MISC sole proprietors.). If the CA FTB mistakenly thinks you have CA-source income, you'll have to set them right.
That said, it is entirely legitimate for states with an income tax to tax non-residents on income earned within their borders. Every income-taxing state does it. (The only exception is for active-duty military.) But the fact that you can take a credit for taxes paid to other jurisdictions means that double-taxation does not occur. And if you have income from a non-resident state, you may or may not have to file a tax return there. Non-resident filing requirements do differ from one state to another.