Re: Working remote for a California employer
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Working remote for a California employer

I live in Utah but working remote (full time) for a California employer.

Do I have to pay income tax for both Utah and California?

6 Replies
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Level 15

Working remote for a California employer

If you live and work in Utah then all of your income is reported on and taxable on your Utah resident state tax return.   

If you have never lived in or worked in California then you do not file a CA state income tax return.  Unless your employer is withholding CA state income taxes from your wages then you would need to file a nonresident CA state tax return to get a refund of all the state taxes withheld.

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Level 14

Working remote for a California employer

@DoninGA 's answer is correct if you are a W-2 employee.  However, due to a court decision earlier this year,  the California FTB may now require sole proprietors selling services to California customers to file California returns, even if such services are performed wholly outside of California and the sole proprietor otherwise has no connection to California.

You can read the details on this ruling here:   https://www.coblentzlaw.com/california-office-of-tax-appeals-gives-precedential-authority-to-bindley...

There have already been questions on this forum from users who've received dunning letters from the California FTB because of this ruling.

So if your California employer regards you as an independent contractor (instead of an employee) and issues you a 1099-MISC at year's end instead of a W-2, you may well have to file a non-resident CA return in addition to your UT return.  In that situation, you'd be able to take a credit on your UT return for taxes paid to CA, so you wouldn't be double-taxed.

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

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Level 1

Working remote for a California employer

Sorry for digging up this old thread, but I'm planning to move from California to another state over the next two years or so and this would apply to me. I'm working remotely for two different companies in CA: one is W2 income and the other (most of my income) is 1099 income (sole proprietor). Is there any way to get around having to file income tax with CA after I moved out of state? I.e. would it be possible to setup a different business entity (maybe an LLC or S-Corp?) in my new state of residence and then invoice from that new entity instead of as a sole proprietor? Or is the only way to have them hire me as an employee?

Any advice would be greatly appreciated, since that court decision is still recent there's not a lot of information available.

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Level 14

Working remote for a California employer

@rubenve --

 

CA's filing rules for S-Corp's are here:  https://www.ftb.ca.gov/file/business/types/corporations/s-corporations.html

And its rules for LLC's are here:  https://www.ftb.ca.gov/file/business/types/limited-liability-company/index.html

 

You will see that they key element for taxation by CA for S-Corp's and LLC's is whether or not they are "doing business in California."  The references above give further details on that.

 

If you are a sole proprietor and you receive a 1099-MISC for services provided to a CA-based customer, it appears pretty clear that your compensation will be considered taxable by CA.  Here's another web reference on that: 

https://www.stevesimsea.com/news/2019/6/12/non-resident-sole-proprietors-performing-services-for-cli...

 

If you are a CA non-resident and a W-2 employee, your income from work actually (physically) performed outside CA is not subject to CA taxation.

 

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

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Level 1

Working remote for a California employer

Thanks Tom. I really appreciate you taking the time to reply. I'm going to do some more research on the subject. It looks like the W-2 route is the only way to get around it. It just sounds so ridiculous to me that you'd have to pay income tax in a state you don't even reside in.

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Level 6

Working remote for a California employer

Some states tax remote workers ... just the way it is now a days. 

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