I moved to NJ from CA last March with an intention of staying for about a month due to family emergency, but ended up stayed there until late August and moved back to California. I have been WFH since March until now. My boss was aware of my stay in NJ but I don't think the company was. During my stay in NJ I also got my larger portion of RSU of the year vested in April. My AGI should be no more than $400K last year.
I couldn't think any negative because NJ seems charge less in state income. My concern is my employer might not be aware of the situation and don't know if that will affect the validity of such a return.
So should/do I need to report state income to NJ during my 'temp stay'?
To answer your original question, yes, you must file an income tax return in both states. It works like this:
Since your stay in NJ was intended from the start to be temporary, and in actuality was temporary, for state tax purposes you were a full-year resident of CA and a non-resident of NJ in 2020. That's because, per California law, a CA resident who leaves CA "for a temporary or transient purpose" remains a resident of CA.* That means that ALL your income for 2020 is taxable by CA.
*Page 6, https://www.ftb.ca.gov/forms/2020/2020-1031-publication.pdf
Additionally, the income you earned while working remotely from NJ is fully taxable by NJ. So you must file a non-resident NJ tax return, reporting your earnings from NJ. NJ can tax non-residents on earnings from work actually carried out in NJ.
You'll be able to take a credit on your CA return for the taxes you pay to NJ on the portion of your income taxed by both states, so in effect you won't be double-taxed.
In the My Info section of TT, enter your State of Residence as CA, and indicate that you had other state income from NJ. Don not indicate that you moved from one state to the other. Then, be sure to complete your non-resident NJ return before you do your home state CA return, so that the credit flows properly.
Yes. Your income earned while physically in New Jersey is taxable to New Jersey.
You should prepare a non-resident New Jersey state tax return before you prepare your California resident tax return to calculate your resident income taxes correctly.
California Guidance for Remote Workers Tax Filing During COVID-19
Do I need to notify my employer in California about my temp stay in NJ? I am not sure if IRS would or need to confirm this with my employer in case there is an audit in the future.
I am going to play devil's advocate. As I read your story, I wonder, did you really move to NJ? You packed up all your stuff, changed your license, car insurance, voting, got a place for a month with intention to stay and be a NJ resident? It really does not sound like you moved to NJ. It sounds like you went home for a visit due to family emergency and stayed there. Then you went home. Let's look at both sides of this coin.
If you really did move to NJ, then you are a part-year resident return and must file all income earned while living in NJ.
However, it you were just there visiting, all your stuff stayed in CA, your home and stuff, license, voting and intent to live, all CA, then you were not a resident of NJ. Non-residents of NJ only file tax on income earned from a NJ source. You had CA income, there would be no need to file a return.
So, you need to decide if you were actually a NJ resident or just staying there dealing with family. Part of being a resident is intention. It was never your intention to make NJ your permanent home from the way it sounds.
To answer your original question, yes, you must file an income tax return in both states. It works like this:
Since your stay in NJ was intended from the start to be temporary, and in actuality was temporary, for state tax purposes you were a full-year resident of CA and a non-resident of NJ in 2020. That's because, per California law, a CA resident who leaves CA "for a temporary or transient purpose" remains a resident of CA.* That means that ALL your income for 2020 is taxable by CA.
*Page 6, https://www.ftb.ca.gov/forms/2020/2020-1031-publication.pdf
Additionally, the income you earned while working remotely from NJ is fully taxable by NJ. So you must file a non-resident NJ tax return, reporting your earnings from NJ. NJ can tax non-residents on earnings from work actually carried out in NJ.
You'll be able to take a credit on your CA return for the taxes you pay to NJ on the portion of your income taxed by both states, so in effect you won't be double-taxed.
In the My Info section of TT, enter your State of Residence as CA, and indicate that you had other state income from NJ. Don not indicate that you moved from one state to the other. Then, be sure to complete your non-resident NJ return before you do your home state CA return, so that the credit flows properly.