Remote work for IL from CA

[shangt]

I just got a remote job in Illinois, I am working from home in California, do I have to file state tax return in both states?

[KrisD15 · Accepted solution]

No.

The employer should only withhold CA state tax in which case you would only file a state tax return for California. 

If the employer withheld Illinois Tax, you would need to file a Illinois return to get the Illinois tax refunded and also a California return to pay your state tax on that income. 

You would only need to pay Illinois tax if you spent time physically working there. 

[shangt]

@KrisD15, Thanks for your reply, aware the employer withheld IL income tax, but I did not signed an IL-W-4 form. Is employer entitled to withheld income without my signed IL-W-4 form? Thank you.

[ErnieS0]

CORRECTION: These instructions apply to an Illinois resident working remotely for a California company which is the opposite of the OP's question.

You will owe Illinois income tax whether your employer withheld tax or not. An Illinois resident is taxed on worldwide income. Working remotely for a California company counts as Illinois income because you performing services in Illinois.

Your employer is required to withhold Illinois tax, if necessary, even if you did not complete Form IL-W-4.

Illinois says:

If you do not file a completed Form IL-W-4 with your employer, if you fail to sign the form or to include all necessary information, or if you alter the form, your employer must withhold Illinois Income Tax on the entire amount of your compensation, without allowing any exemptions.

See Form-IL-W-4 instructions.

Thanks for pointing this out @TomD8.

@shangt

[Edited 03/11/23 | 10:06 PST]

[TomD8 · Accepted solution]

@ErnieS0 --

The taxpayer is a California resident working remotely for an Illinois Employer.

@shangt --

If your services are entirely performed outside the state of Illinois, your employer is not required to withhold Illinois taxes.

https://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=003500050K304

If your employer does withhold IL taxes anyway, then you must file a non-resident IL tax return, on which you allocate zero income to IL, in order to obtain a refund.

If your employer does not withhold CA taxes, you must make quarterly estimated tax payments to CA.  Your income is 100% taxable by your home state of CA, regardless of its source.

https://www.ftb.ca.gov/pay/estimated-tax-payments.html

[Opus 17]

Generally, speaking, you pay income tax based on where you are living, or where you actually perform the work, not based on where the company is located.  There are a few states that will try to tax you if your employer is based in that state but you work remotely, but Illinois is not one of those states.  Therefore, you would only owe Illinois state income tax for any income that you earned or that was paid to you while you were living or working in the state of Illinois. This might include a week of training, or one day a month that you are required to travel to Illinois to attend meetings, and so on. You would allocate your income between Illinois and California based on the percentage of work days that you performed work in Illinois.  

If you do have some Illinois work, you would file an Illinois nonresident tax return, and a California resident tax return. You would pay Illinois tax only on the percentage of income earned while you were physically working or living in Illinois. You would pay tax in California on all your worldwide income, but California will give you a credit for Illinois tax that you paid on the same income.