Solved: California Income Tax for US Citizens Residing in a Foreign Country and Telecommuting for a California Company
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California Income Tax for US Citizens Residing in a Foreign Country and Telecommuting for a California Company

I am a US citizen and had lived in California and paid California State income tax for many years. I permanently moved to France in December 2016, and lived in France the entire 2017 (365 days). I recently obtained a French residence permit. 

While I lived in California, I worked as a software developer for a California-based company on a telecommuting basis for a decade. While residing in France in 2017, I continued working remotely for this company all year. 

My entire income is generated from this company/employer. California State income tax has been withheld from my paychecks for 2017, just as in previous years. All I have left in California is one bank account where my paychecks are direct-deposited and one PO Box where I receive my mail (which is then sent to my French address periodically by a friend). I have no other ties to California.

I am now doing my 2017 taxes. My question: Am I considered a California resident, and do I have to pay taxes to the State of California? I am guessing since the source of my income is a California company, then I'd have to still pay both Federal and California State taxes, even though I reside in another country (I am not paying any taxes to the French government for 2017). I'd appreciate any answer/thoughts on this.

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California Income Tax for US Citizens Residing in a Foreign Country and Telecommuting for a California Company

Please follow this link to determine your residency status: Residents, nonresidents, and part-year residents https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents-Part-Year-Residents.shtml#residency_status

California defines California source income as "income for services performed IN CALIFORNIA."  See the Compensation section of this reference:  https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents-Part-Year-Residents.shtml#compensation
In fact, California specifically states "Wages and salaries have a source where the services are performed."
Therefore a CA non-resident who never physically worked in California does not have California-source income and is not subject to CA income tax.

Hope its help.

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California Income Tax for US Citizens Residing in a Foreign Country and Telecommuting for a California Company

Please follow this link to determine your residency status: Residents, nonresidents, and part-year residents https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents-Part-Year-Residents.shtml#residency_status

California defines California source income as "income for services performed IN CALIFORNIA."  See the Compensation section of this reference:  https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents-Part-Year-Residents.shtml#compensation
In fact, California specifically states "Wages and salaries have a source where the services are performed."
Therefore a CA non-resident who never physically worked in California does not have California-source income and is not subject to CA income tax.

Hope its help.

View solution in original post

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California Income Tax for US Citizens Residing in a Foreign Country and Telecommuting for a California Company

Thank you TurboTaxViktoriya. I read your links and the FTB site couldn't be any clearer about the "source of income". But this also means that TurboTax doesn't know what it is doing in a situation such as mine. In the "State Taxes > Residency Status" section, I entered that I was in FC (foreign country) for the entire 2017. Yet, turbotax filed a 540NR, and of $5600 State taxes withheld, turbotax is saying I am entitled to only a $740 refund. Or perhaps, is it possible that I didn't enter the correct information?
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California Income Tax for US Citizens Residing in a Foreign Country and Telecommuting for a California Company

And I think the key is Schedule CA 540NR, in which Turbotax is reporting my entire income under column E, which then gets fully taxed.
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California Income Tax for US Citizens Residing in a Foreign Country and Telecommuting for a California Company

So it turned out that it was I who made the mistake, not TurboTax. In the "State Taxes > Go Over State" section where TurboTax determines your residence status, it does ask you about how much income you had "in" California. The word "in" misled me and I entered my full income. But as TurboTaxViktoriya accurately explained, I should have entered zero, because I was not physically present "in" California when I performed the programming services for my employer. And it does not matter that my employer is in California. Furthermore it does not matter that my employer is direct-depositing into my US bank account. All that matters is "where" the service was performed. In my case, it was performed in France. TurboTax did the rest of the work, and so now FTB has to give me a full refund for the entire State taxes withheld.
Many thanks to TurboTaxViktoriya for the correct answer and for leading me to further information on this issue.
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