State taxes for couples working from another state

[Mj94]

Me and My wife live in Washington for full year. Husband (me) works for organization in Washington - so no state taxes.  Wife has a work state in California but stays in Washington. Never will set a foot in California for entire year. Her employer does California tax witholding where as domicile is Washigton.

Question : For Federal taxes - State does not matter- I believe we can file as Married filing jointly - no issues there , right?

Question - Does wife really owe any California Taxes since Domicile is Washington and we can get a full refund back ?
or If she owes - Can we still file as California Married with mine as zero income and wife income in California or would my entire income in Washington get into account if filing as Married for California ?

[AmyC]

Since the wife did not work in CA, you want to file a nonresident return to claim a refund of the taxes taken. CA no longer taxes income earned in CA without working in CA.

[Mj94]

Thank you  @AmyC  for response. My W2 I believe carries domicile address ( home address) which is Washington.

Q1 - What would my spouse  return look like - filing as single person - non resident return - zero income ?and that would trigger Calofirnia government to refund taxes - is it?  (what about W2's income not matching)

Q2- Federal can still be file as MFJ ,right - they dont care about this states thing - right ?

[AmyC]

A1. You can file both federal and state as MFJ. The CA return will have zero income, full refund since no work was done in CA. 

A2. Since your return shows no work in CA, CA should issue a full refund.

A3. Since the w2 shows CA income, the state may send you a letter stating you owe taxes. You reply that your wife never worked in CA, only from home in WA. A letter from the employer would be great, if that happens.

A4. You are correct, the federal does not care how you file the state.

[Mj94]

Hi @AmyC 

Hi Team,
I am filling the california return. As per above conversation - it seemed to fill "Zero" income for california if  we never set foot inside california. 

But turbo tax suggestion while filling says with example says something different. If Nolan was in Oregon full year- then why would he fill 60k for california?

This seems contradictory

From turbo tax software : 
"

How much of my wages did I earn in California?

Since you're filing a nonresident return for California, you should only enter wages that you earned while working in California. Don't include any wages that were earned in your resident state.

Example: Nolan lived in Oregon all year. He worked at a job in Oregon for 6 months, and he worked at a job in California for 6 months. He received a W-2 for his job in Oregon that shows he earned $40,000 in wages. Also, he received a W-2 for his job in California that shows he earned $60,000 in wages. Nolan should only report the $60,000 from his California W-2 on his California nonresident return."

[ErnieS0]

I don’t quite understand your question. The example you include is for an Oregon resident who physically worked in California for six months.

California and other states tax residents who earn money inside the state. So Nolan reports $60,000 of CA income because he earned the money by commuting to (or temporarily living in) California.

In your case, your wife’s employer mistakenly withheld CA income tax. You are reporting $0 wages because none of the money was earned in California.

R&TC Section 17951 contains the provision requiring nonresidents to be taxed on all income from California sources. California source income includes payments for personal services performed in California. 

Where the nonresident lives, the location where the contract for services is entered into, or the place of payment does not determine the source of income from personal services. 

The location where the personal services are performed determines the source of income. Nonresidents must include in California gross income the gross payments for all services performed in California.

See Resident and Nonresident Withholding Guidelines

[Mj94]

Hi @ErnieS0 @AmyC 
Thank you for your response.

I had filed my California return and got the refund. But now I realised that California Turbo-Tax Software did not ever asked my California SDI in return of Form 540 NR.
Q1. I feel that it should have present some where in Return of Form 540 NR . and Also that should also have been refund ? - is it correct understanding ?
Q2. I looked at the entire UI again. Where would it get entered for refund ? 
Q3 From internet- it seems line 84 of Form 540 NR- is it correct ? 
Q4. What is the way to do it ? File an amend return - does it cause issue as refund was already issued? 

If its yes that California SDI also is refunded ? - what should I do - filed an amend return ? - which  

[MaryK4]

1. California does not refund incorrectly withheld SDI on the tax return unless it it the specific situation where there are two employers and the amount withheld exceeded the annual maximum.  You will have to contact her employer to request the SDI refund.

2, You do not claim a refund for incorrectly withheld SDI on your tax return UNLESS there were two employers and the combined SDI exceeded the maximum.

3. Directly from the CA 540 NR Instructions: (2022 540NR Booklet | FTB.ca.gov)

Line 84 – Excess California SDI (or VPDI) Withheld
You may be entitled to claim a credit for excess State Disability Insurance (SDI) or Voluntary Plan Disability Insurance (VPDI) if you meet all of the following conditions:

You had two or more California employers during 2022.
You received more than $145,600 in gross wages from California sources.
The amounts of SDI (or VPDI) withheld appear on your federal Form(s) W-2. Be sure to attach your federal Form(s) W-2 to your Form 540NR.
If SDI (or VPDI) was withheld from your wages by a single employer, at a rate of more than 1.10 percent of your gross wages, you may not claim excess SDI (or VPDI) on your Form 540NR. Contact the employer for a refund.

4. Since you do not claim a refund for incorrectly withheld SDI on your tax return UNLESS there were two employers and the combined SDI exceeded the maximum, you do not need to amend.  You will have to contact the employer for a refund.

@Mj94