Received income from Illinois company after leaving it and moving to California: does it count as CA income?

[ebrahimm777]

My former company had a policy to process and pay income/bonuses for certain projects in a phased manner, even after an employee, like myself, leaves the company. So, I received income/bonuses a couple of times in late 2019, after leaving the company, for projects I had done in 2018 or early 2019.

I moved to California around Summer time 2019, so I'm trying to understand how to file those paychecks/incomes for my CA return and also for my IL return.

Turbotax says a "CA income" includes an income received while a resident of CA, even if the income is from work in another state. Does this apply to my situation? My confusion is mainly because, technically, I didn't "work" for those IL paychecks when I was a resident of CA, rather I just received the IL company paychecks when I was a CA resident, but the "work" itself happened while I was an IL resident. 

[CatinaT1]

This would count as California income.  Even though you earned it while in a different state, it wasn't paid to you until you were living in California, so it technically California income.  You do need to file an Illinois return based on this income.

[ebrahimm777]

Dear @CatinaT1,

Thanks a lot for your prompt response and very useful information. So, for me to better understand your comment, here are two small follow-ups. Can you please confirm?

• You suggested that I should file these incomes/payments as both CA income on my CA tax return and also IL income on my IL tax return, right? If so, isn't there a problem with double counting, that is, counting the same income twice?
• Does it matter how my former IL company processed those pay-stub (and W2) for state tax purposes, for example, taking out IL taxes from the paychecks based on IL company address, or taking CA taxes based on my home address in CA? Actually, I'm not yet sure how they did it (waiting for their response), but just wondering if that aspect impacts on how I should file my IL return and CA return. 

Greatly appreciate your help. 

[CatinaT1]

@ebrahimm777

You only report the bonus amount in the state where you were when you received it, not in both states.  So if you received the bonuses while in California, it is California income only.  You will file part year resident returns in both Illinois and California if you moved during 2019.

Do you work for the same company you worked for in Illinois in California?  I assume not.  I am assuming you worked in Illinois for the first part of 2019, moved to California and started a job with a new company.

Enter your W2's just as they are - with withholdings from which ever state the employer withheld from.  When you complete both returns, it will all balance out.  You want to do your prior resident state before your current resident state.

[ebrahimm777]

Hi again @CatinaT1 , following up on this old thread.

I followed your advice for this issue, and reported those bonuses that I received from my IL company after moving to CA, as CA income, and not IL income.

Then, I received a correction letter from the IL Department of Revenue, saying I should have reported my IL income same as what is indicated in the W2 from my IL company, that is, including those later bonuses, so they ended up paying me $99 refund for 2019, instead of the $545 refund calculated by TurboTax and claimed by me. 

Do I have an option to contest to the IL Department of Revenue and ask for extra IL refund, or should I reach out to the CA Department of Tax and Fee Administration and ask for a correction and payment for my CA refund? 

Appreciate your help with this

[LenaH]

Since Illinois included the bonus income on their state return, you have to amend your 2019 California return to exclude it from California income. You should then get a refund of California taxes paid.

For 2019 amendments, scroll down to Your tax return & documents, select 2019 and then Amend (change) return. From there, you can make your changes. When finished, TurboTax will give you instructions for printing and mailing your amended return as amendments can't be e-filed.

@ebrahimm777

[TomD8]

@ebrahimm777 :

I believe Illinois is correct.

Illinois Law 35 ILCS 5, Section 304 (a)(2)(B)(1) states:

Compensation is paid in this State if:             (i) The individual's service is performed

entirely within this State;

https://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=577&ChapterID=8

Therefore, if your bonus represented compensation for services performed entirely in Illinois, it is taxable by Illinois.  It may also be taxable by your state of residence at the time you received it - in which case you could normally claim a credit for the taxes paid to Illinois on the income taxed by both.

[ebrahimm777]

Dear @LenaH , and @TomD8 ,

Thank so much to both of you for the information.

It appears that I have to amend my CA income for 2019 to take into account the additional income that is now considered to be an IL income. The only caveat is whether to tell CA to exclude it from my CA income in the first place (as @LenaH suggested) or to still keep it also as CA income but ask CA for a tax credit since it is already taxed by IL (as @TomD8  suggested?). Will work on this using TurboTax to figure out how to file it, but please feel free to provide additional information, if any.

Now, a follow-up question is, when filing my 2020 tax returns (both federal and state -- only CA), do I have to reflect these corrections (or request for corrections) for CA 2019 in any way, or can I simply file 2020 based on what is the current state of the situation, regardless of any amendment request I'd submit for 2019 CA?

[TomD8 · Accepted solution]

The Illinois bonus money you received in 2019 after becoming a California resident is taxable by both states.

It is taxable by Illinois because it was compensation for work performed in Illinois.

It is taxable by California because California taxes residents on all income, regardless of source.

So the IL bonus must be included in CA income on your 2019 amended CA return.

Your amended 2019 CA return should have no effect on your 2020 tax returns.