It depends, and it could be both. If you were a resident of Michigan (MI) the full year of 2021 and physically worked in California (CA) where the income from the settlement was derived then you include the income on the CA return as a nonresident and the MI return as a full year resident. MI will give your a credit for taxes paid to another state. File your nonresident state return first, the file your resident state.
The credit for taxes paid to another state on the same income is used on your resident state because they do not want you to pay taxes twice on the same income. As the resident state all worldwide income must be included.
The credit for tax paid to another state on the same income will be the lesser of:
- the tax liability actually charged by the nonresident state, OR
- the tax liability that would have been charged by your resident state
If you were never physically situated in CA when the money was earned in 2021, and the money in 2023 was derived from that work, there is nothing to file for CA unless you are requesting a refund of withheld state taxes.
- Nonresident Filing Requirements
- Do I need to file? As a nonresident, you pay tax on your taxable income from California sources.
- Sourced income includes, but is not limited to:
- Services performed in California
- Rent from real property located in California
- The sale or transfer of real California property
- Income from a California business, trade or profession
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