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Author: Rynoman One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121567  
Subject: CA Non-resident income tax Date: 2/15/2002 6:37 PM
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OK, I am way confused about this one and am turning to Fooldom. Hopefully there's someone who's been in this situation before.

I am a resident of Arizona. Between January and July 2001, I had a co-op/internship in California. I have since moved back to Arizona to finish my degree.

Here's the quick synopsis:
1) I am a non-resident of California (that much I can figure out).
2) I have ~$20K income earned from said co-op in California.
3) On my W-2, this ~$20K is taxed as follows:
Federal: $20K income, $3K tax withheld (boxes 1 and 2)
Arizona: $17K income, $700 tax withheld (boxes 15 and 16)
California: $2.5K income, $125 tax withheld (boxes 15 and 16 on second W-2)
4) I also have ~$4K of self-employed consulting income (1099-MISC) earned in Arizona which California doesn't care about.

Now, California law says that all income earned within California has to be claimed. To me, that means the whole $20K. It's the fact that the state incomes were split that has me confused.

I see a couple ways to file this on my state returns:

1) $20K on both California and Arizona forms. Deduction taken for state income taxes withheld by the opposite state.
2) Claim income based on the W-2 info ($17K to CA, $2.5 to AZ). This seems like it would be audit prone.

I've been staring at this stuff for too long. Where's that flat tax when you need it? =)

Thanks in advance for any help or guidance,
Ryan.
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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59001 of 121567
Subject: Re: CA Non-resident income tax Date: 2/15/2002 7:16 PM
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Actually, your problem isn't all that difficult to solve. You have two choices. Either you claim to be a part-year resident of CA and a part-year resident of AZ, or you are a full year resident of AZ with out-of-state earnings in CA.

If you choose the latter, you report all your income to the federal government. You then complete your CA non-resident return, reporting $2.5K of CA income since that is what your employer is reporting to CA that you earned there. I'm not familiar with the CA non-resident return, but there are two common ways to determine your NR tax, (1) based on income earned in-state or (2) based on all income earned everywhere times the ratio of in-state income to total income. Method (2) produces a higher tax and is used in NY and NJ (the two states I am most familiar with). Finally, you complete your AZ return, reporting all your income earned everywhere. AZ probably will give you a credit against your income tax for part or all of the tax you paid to CA. Look carefully, because the credit may be on a different form.

Ira

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Author: Rynoman One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59002 of 121567
Subject: Re: CA Non-resident income tax Date: 2/15/2002 7:49 PM
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You then complete your CA non-resident return, reporting $2.5K of CA income since that is what your employer is reporting to CA that you earned there. I'm not familiar with the CA non-resident return, but there are two common ways to determine your NR tax, (1) based on income earned in-state

The CA forms use this method to determine the NR tax. But the income my employer is reporting (2.5K) isn't equal to the amount I earned in-state (20K). I can see the sense behind filing only what the employer reports to CA (especially since they have a large presence in both CA and AZ). In experience, does the employer's reported number always take president over the state method's number?

AZ probably will give you a credit against your income tax for part or all of the tax you paid to CA. Look carefully, because the credit may be on a different form.

Turns out AZ doesn't give a credit for income taxes paid to CA (or about 7 other states)...bummer. (The reverse is true, though.)

Ryan.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59005 of 121567
Subject: Re: CA Non-resident income tax Date: 2/15/2002 9:56 PM
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there are two common ways to determine your NR tax, (1) based on income earned in-state or (2) based on all income earned everywhere times the ratio of in-state income to total income. Method (2) produces a higher tax and is used in NY and NJ (the two states I am most familiar with).

Method (2) is also used in CA (my home base).

Finally, you complete your AZ return, reporting all your income earned everywhere. AZ probably will give you a credit against your income tax for part or all of the tax you paid to CA. Look carefully, because the credit may be on a different form.

CA and AZ are backwards from the usual routine. An AZ resident takes the other state tax credit (for CA) on their CA non-resident return. I knew why once. I can't recall right now.

--Peter

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59006 of 121567
Subject: Re: CA Non-resident income tax Date: 2/15/2002 9:59 PM
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Ryan--

Make sure you are using a CA form 540NR - not the regular form 540. You use the same form for either part-year residence or non-residence. You will find that is uses Ira's method (2). You report all of your income from every state, then take a percentage based on how much income is taxable to CA.

--Peter

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Author: Rynoman One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59010 of 121567
Subject: Re: CA Non-resident income tax Date: 2/16/2002 2:12 PM
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Make sure you are using a CA form 540NR - not the regular form 540. You use the same form for either part-year residence or non-residence.

That's what TurboTax said, too. ;)

You will find that is uses Ira's method (2). You report all of your income from every state, then take a percentage based on how much income is taxable to CA.

So with this method, my ratio is 20K in CA over 24K total. And with the credit for AZ tax, I'm due a return of all CA tax. Nice.

Ira was right, this wasn't that bad. I was just the mixed state taxes on my W-2s that was throwing me.

Thanks to you both,
Ryan.

(I knew there was a reason I'm willing to pay for these boards.)

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59013 of 121567
Subject: Re: CA Non-resident income tax Date: 2/16/2002 3:50 PM
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So with this method, my ratio is 20K in CA over 24K total. And with the credit for AZ tax, I'm due a return of all CA tax. Nice.

I don't understand why you insist on treating your entire W-2 as CA source income when your employer has already told you that only 2.5K is CA source.

Ira


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Author: Rynoman One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59126 of 121567
Subject: Re: CA Non-resident income tax Date: 2/19/2002 10:24 PM
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I don't understand why you insist on treating your entire W-2 as CA source income when your employer has already told you that only 2.5K is CA source.


It turns out CA non-resident forms have a line to declare your total wages from your W-2s (the 2.5K in my case), and then uses the second, ratio method you described to determine the tax owed.

Using the suggestions from the board, I ended up running the numbers both ways. Turns out with either method, CA owes me a refund of all CA state taxes paid (because of the AZ state tax credit).

I did finally get it, though. I appreciate your help.

Ryan.

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