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hklu2
Returning Member

W-2 income in California while working from home -- no withholding

I have a job based in WA but I worked from a relative's home in CA for almost the entire year in 2021!

 

My employer didn't know that I was working from CA so didn't withhold CA taxes. I got a W-2

 

I was domiciled in WA (no mail or anything sent to CA during this time.) I even voted in WA 

 

Do I need to pay CA taxes for my income? What would your recommendation be?

 

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4 Replies
rjs
Level 15
Level 15

W-2 income in California while working from home -- no withholding

You have to pay state tax to the state that you actually worked in (if that state has state income tax). It doesn't matter where you live, or vote, or get your mail, or where your employer is located. You have to pay California tax on all the income you earned for work that you did in California. You have to file a California tax return and report the income.


Even though your permanent home is in Washington, you will probably be considered a California resident for income tax purposes for 2021. Since every state has a different definition of a resident, it is possible to be considered a resident of more than one state at the same time. So being a Washington resident would not necessarily mean that you are not a California resident. You can have only one domicile, but you can have multiple residences. The California Franchise Tax Board has a publication that explains how to determine whether you are a California resident for income tax purposes, FTB Publication 1031, "Guidelines for Determining Resident Status." Note that on page 5 it says "You will be presumed to be a California resident for any taxable year in which you spend more than nine months in this state." If you are considered a full-year or part-year resident of California you will have to pay California tax on all of your income during the period of residency, even if some of the income is not from California. You should probably consult a tax professional in California to discuss your residency situation.


Whether you are a resident or a nonresident, you will probably have to pay a penalty for not having paid any California tax during the year. You should have made estimated tax payments to California.


Here's some additional background about living in one state and working in a different state when both states have income tax. This does not apply to your particular situation, since you live in a state that has no income tax, but it might be applicable to other people who read this. Any income you earn for working is always subject to tax by the state where you did the work. This is a general rule that applies in any state that has income tax. In addition, all of your income is subject to tax by the state that you live in, no matter where the income is from. If worked in one state, and lived in a different state that also had income tax, you would also have to report the income to the state that you live in. However, one of the states would give you credit for the tax that you paid to the other state. The most common arrangement is that the state you live in gives you credit for tax you paid to the state where you worked. But there are a few cases where it's the other way around. California does it the other way around with a few other states. There are also some states that have reciprocal agreements between two states. Under a reciprocal agreement you pay tax only to the state that you live in, even if you worked in the other state.


None of this applies in Washington, since there is no state income tax. There is no credit for tax paid to another state, and no reciprocal agreements. You just pay tax to the state that you worked in.

 

hklu2
Returning Member

W-2 income in California while working from home -- no withholding

Thank you @rjs for your helpful reply.

 

What confuses me is the wiggle room / discretion available.

 

For example, if someone visits NYC or Boston for a few weeks and works out of a hotel or Airbnb, they typically aren't going to file a tax return for those states just because of that visit, especially if their employer isn't doing that withholding actively. 

 

If that's the case, couldn't one extend that logic to any other state one is a digital nomad in?

 

In my case, I was visiting...it just ended up being a really really long visit...so I'm wondering if there's any wiggle room here at all.

 

 

 

 

W-2 income in California while working from home -- no withholding

There is no ‘wiggle room’ @hklu2. If someone visits NYC or Boston for a few weeks and works out of a hotel or Airbnb, then they must file an income tax return and pay tax unless they are not required to file and pay tax. It's a math calculation.

 

It’s not unusual for professional athletes and entertainers to file in every state they perform in because their income for spending one day in New York City or Boston is high enough to require filing a tax return and paying tax, even through they were ‘just visiting’.

 

New York requires nonresidents to file a return if you have New York source income and your New York adjusted gross income Federal amount column exceeds your New York standard deduction.

Filing information for New York State nonresidents

 

Massachusetts requires nonresidents to file if they have annual Massachusetts gross income of more than either $8,000 or the prorated personal exemption, whichever is less.

Who must file a state personal income tax return

 

Not filing the appropriate state tax return because your employer didn’t withhold the appropriate state tax means you are violating the law.

rjs
Level 15
Level 15

W-2 income in California while working from home -- no withholding

(A) If someone visits New York City or Boston for a few weeks and works out of a hotel or Airbnb, they are legally required to file a New York or Massachusetts tax return and pay New York or Massachusetts tax on the income that they earned there. That's the logic that extends to other states. It's true that some people will break the law. We do not advise you to break the law.


(B) Any wiggle room that might have existed disappears when a visit becomes "a really really long visit." You're not talking about "a few weeks." You seem to have been in California long enough to be considered a California resident for income tax purposes. Read the FTB publication.


(C) The California FTB is very aggressive about collecting taxes. Their starting assumption is that you owe California tax. They will not give you any wiggle room. If your residence situation is unclear, they will probably say you are a resident, unless you can prove otherwise. But you have to pay California tax on your California income, whether you are a resident or not.


(D) I again suggest that you consult a tax professional in California.

 

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