Level 5

Question

California Part year resident wages

Forum|Forum|3 years ago
September 28, 2022
2 replies
17 views

Client moved to California September 1st from the Netherlands. Her W2 from the US is different for Federal and California (it shouldn't be, but their payroll department screwed up and won't own up to it).

When I use the wage allocation on line 1 it shows the correct amount of CA source income but then "apportions" the income so that she's paying a higher tax than she would have on just the CA income earned. It works if I use the "State Wages, if different" line, but I keep getting Critical Diagnostics, so I'm second guessing myself.

She should only be paying CA taxes on wages earned while she lived in California, right?

Lacerte Tax

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qbteachmt

Level 15

"She should only be paying CA taxes on wages earned while she lived in California, right?"

Most times, there is tax on all income, and then a credit back if there also was tax paid on that same income to another entity. You might start here:

https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html

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willatbirdAuthor

Level 5

From your link:

"Part-year resident

If you lived inside or outside of California during the tax year, you may be a part-year resident.

As a part-year resident, you pay tax on:

All worldwide income received while a California resident
Income from California sources while you were a nonresident"

The only income earned while in California is the California portion of the W2. The additional income was earned while she lived in the Netherlands.

qbteachmt

Level 15

"The additional income was earned while she lived in the Netherlands."

As in: "Income from California sources while you were a nonresident" because you told us "Same company, different entity."

Don't yell at us; we're volunteers

BobKamman

Level 15

Why do you think the payroll department screwed up? I often see state W-2s that split out the total federal amount, by state. She moved to California from the Netherlands, but where was she a resident before she moved? Is she a newly-arrived immigrant, or was she a US resident before going there, and did she maintain her US residence?

States have two methods of taxing part-year residents.

Method 1: Just pay tax on what you earned here, it doesn't matter what you earned elsewhere.

Method 2: Figure the tax on your entire annual income, regardless of where it was earned. Then apply to that total tax, the percentage of income that was earned here.

The second method gets part-year residents into the higher state tax brackets, and so is popular with states like California and New York.

sjrcpa

Level 15

And CA taxes some things that the feds don't. For example - HSA contributions I think.

The more I know the more I don’t know.

From your link:

"Part-year resident

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