US Diplomat Abroad

[rudyk1515]

Hello. I moved to Romania under diplomatic status on June 13th, 2024 since my husband works for the state department. I kept my job, but was moved from an employee and now work as a 1099 for a US based company. I understand that I still need to pay Federal taxes, but do I continue to pay California taxes even though I do not live there and will not move back to California again?

[TomD8]

If you have abandoned your domicile (your main, primary home) in California, and have established it in a new state or country, then for 2024 you will file a part-year resident California tax return.

CA can tax all the income you received while a California resident.  Once you became a CA non-resident, only your CA-source income would be taxable by CA.

Be aware that CA considers any income you receive as a non-resident independent contractor (income reported to you on a 1099-NEC) to be CA-sourced if the client receiving your services is located in California.

[pk]

@rudyk1515 , agreeing with my colleague @TomD8 ,  and adding a few references ----

(a) generally  the IRS rules on sourcing of income  is  recognized as  same as your tax home I.e. where performed.  Thus since you are living abroad ( Romania )  your income  source  is  Romania  and eligible for  Foreign earned income exclusion   ( since you are not employed by an embassy.

(b) For California purposes, the drive to Market based economy -- the sourcing is based  on  whom is the beneficiary of the work  -- a customer based in CA or a customer's customer  based in CA.   It is a case of economic  nexus.    See this ref.  ( you are an independent  contractor   doing business  in CA  and so the  thresholds apply ) -->  Doing business in California | FTB.ca.gov.

(c)   I have no clue  how they plan to enforce this  when a business  buys services from a person in China ( or any other country ) and directly pays  an amount  on the borderline of the threshold.  But I understand why they are doing this.

Good Luck

[rudyk1515]

Thank you so much for your response. So, the company I work for has offices all over the United States, but their "corporate office" is in California. I did give up my residence and have no ties to California anymore (no property and even my car is registered in Romania).  If the company I work for as a 1099 has their corporate office in CA, but employees all over the United States do I still have to pay taxes in California?  I am their Payroll Manager so I do not just work for corporate office, in a sense. 

[TomD8]

A W-2 employee who is CA non-resident and has no CA-source income has no income tax obligation to the State of California.  CA's rule is that W-2 income is sourced where the work is actually (physically) performed.  Thus a W-2 taxpayer in your situation would owe no income tax to CA on his or her earnings after establishing residence in Romania.

Unfortunately, due to the California Tax Court's 2019 Bindley decision, the source of an independent contractor's income is determined by where the benefits of the contractor's services are received. 

https://ota.ca.gov/wp-content/uploads/sites/54/2019/08/18032402_Bindley_Decision_OTA_053019.pdf

This web reference discusses the Bindley decision:

https://www.andersen.com/pressroom/california-decision-highlights-states-aggressive-stance-on-taxing...

I have no idea how California enforces this decision, but my (totally unofficial) guess is that CA will regard 1099-NEC income as taxable by California if the Payer's address on the 1099-NEC is in California - regardless of whether or not the recipient lives in or works in California.