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My daughter is moving to California next month, where she has a paid internship lined up. Since her stay there will be temporary (one year), she plans to retain her Maryland residency (driver's license and voter's registration). Should she plan on paying state tax to CA or MD?

Hubby works in DC as a commuter and pays MD tax (kind of a sore point for DC, but that's another story), so I assumed that daughter would pay MD tax. But maybe her having an apartment in CA makes a difference?

Any pros/cons to just changing her residency to CA?

I don't think the following info will make a difference, but just in case:
1. She's 22.
2. Since internship is through her college (in Texas), they will continue to have her registered as a full-time student. (I checked on this for medical insurance purposes.)
3. Hubby & I will continue to put her as a dependent on our 1040's for '03 and '04.

Thanks in advance,
Mary
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I can't speak for California, but as a long-time Maryland resident I can attest that Maryland is very aggressive in going after income, wherever earned. Given that she's planning to retain her MD driver's license and voting registration, I can assure you that MD will regard her as one of its residents, and will want to tax her income. Depending on how CA feels about it, she may wind up paying taxes in both places. (She would then get "credit" in MD for paying CA taxes, so that's some consolation.)

Lorenzo
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My daughter is moving to California next month, where she has a paid internship lined up. Since her stay there will be temporary (one year), she plans to retain her Maryland residency (driver's license and voter's registration). Should she plan on paying state tax to CA or MD?

If she earns money in CA, she will be paying CA income tax, regardless of where her residency is. If she maintains a MD residence as well, she will pay MD tax. Although I am not familiar with MD tax laws, I would assume that MD will allow her to take a credit for some or all of the tax she pays to CA.

Ira
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My daughter is moving to California next month, where she has a paid internship lined up. Since her stay there will be temporary (one year), she plans to retain her Maryland residency (driver's license and voter's registration). Should she plan on paying state tax to CA or MD?

She will definitely pay CA income tax on her CA earnings. I'd suggest checking the MD instructions about residency, especially when the spouses don't both live in MD. (Were the state KS, she would remain a KS resident for income tax since she intends to return.)

CA may want to quibble with her plan to retain a MD driver's license and registration if she's going to be there a year. She should check the DMV website. (You can get to any government website starting from www.firstgov.gov.)

Phil
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Got this one on-point...

I can't speak for California, but as a long-time Maryland resident I can attest that Maryland is very aggressive in going after income, wherever earned. Given that she's planning to retain her MD driver's license and voting registration, I can assure you that MD will regard her as one of its residents, and will want to tax her income. Depending on how CA feels about it, she may wind up paying taxes in both places. (She would then get "credit" in MD for paying CA taxes, so that's some consolation.)

Lorenzo

MD is very agrressive in taxation of income on P/Y, MD residents. Had a case where there was income in three States (including FL w/o income tax), and discovered that while main State of residence on 12-31 was NC, the "payer" was taxed by both MD and NC on the FL income with credit given by both tax authorities against the actual income tax "paid" by the other. Income offsets were "allowed" by both primary tax States.

Resulted in a liability to MD, and a refund from NC netting an over all liability to MD. Some States will allow you to offset ALL income (rather then taxes paid) one against the other, but not MD. They will offset only the other State taxes paid against income earned, and the FL income counted on the MD return, (but not the NC return), considered "earned" while a "resident" of MD even if only part year. And if you are considered an MD resident for more then half a year, can result in over taxation on the MD side, and under taxation, on the final State of residency side at 12-31-....that's what happened.

Interesting, the way the State deal with these issues. Can't speak to CA or NY in cases like this, but am well aware of Mid Atlantic inter-state tax treatments.

KBM (Advised tax client to avoid MD at all cost in the future <VBG>, and client moves around alot for work)

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Further on taxes and MD residency:

- KBM is correct: you get credit for taxes paid to another state, which helps a bit.

- if you change your residence during the year, you can exclude income received while a non-resident.

So if you change your residence to CA (or wherever), then income received in your new state of residence is not taxed by MD. Likewise, if you move into MD from another jurisdiction, income received from your old state of residence is not taxed by MD.

The problem is that "resident" is never adequately defined, at least to my satisfaction. The MD booklet merely says that MD is your residence if your permanent home is in Maryland (your domicile) OR if your permanent home is elsewhere but you maintained and occupied a place of abode in Maryland for more than 183 days. So what does permanent home mean? I would think that where you vote, and what kind of driver's license you have, would speak to that (OP's daughter was going to CA but planned to retain MD voter registration and driver's license.) If you leave MD but plan to come back, does that count?

With regard to moving into or away from Maryland, it seems like the safest thing is always to move to Maryland on Jan 1 (planning to stay at least a year), and to move from Maryland on Dec 31 (having stayed at least a year).

Lorenzo
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I "like your style" Lorenzo....<VBG>

Tax planning par excellance.....KBM (Simplisticly your's....just "staying out of MD" altogether)

With regard to moving into or away from Maryland, it seems like the safest thing is always to move to Maryland on Jan 1 (planning to stay at least a year), and to move from Maryland on Dec 31 (having stayed at least a year).

Lorenzo
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Here's what I have so far:

1. Income earned in California is subject to CA tax regardless of residency. Most states have similar requirements. Pro athletes, for example, have to pay taxes in a lot of states every year, wherever their team has a game. DC does not have this requirement, but they're the exception.

2. Income earned while a resident of Maryland is subject to MD tax regardless of where earned. A resident has a "permanent home" or "maintained or occupied a place of abode" in MD. Doesn't say anything about driver's license or voter registration, so my interpretation is that since daughter does not own or rent property in MD, and won't be occupying my house either, she is not a resident for tax purposes.

Since she will have CA income, and no MD income, my recommendation to her will be to pay tax in CA and not even file in MD.

Thanks to everyone for your help.
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2. Income earned while a resident of Maryland is subject to MD tax regardless of where earned. A resident has a "permanent home" or "maintained or occupied a place of abode" in MD. Doesn't say anything about driver's license or voter registration, so my interpretation is that since daughter does not own or rent property in MD, and won't be occupying my house either, she is not a resident for tax purposes.

I disagree with your interpretation. A "permanent home" has nothing to do with renting or owning property. It has everything to do with having a MD address that one (she) intends to return to. The fact that she retains her MD Driver's License and voter registration is evidence that she intends to return to a (your) MD address. If MD is anything like NY, you remain a resident until you can prove you are not a resident.

Ira
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here's the conundrum:

you are claiming your daughter on your Maryland taxes, correct? If you want to make absolutely sure MD doesn't go after your daughter for state taxes, I would probably have her get a CA driver's license. For most states, you just have to take a written test if you already have a driver's license. It is a bit of a pain, but the effort might be worth it to save her thousands of dollars.

I moved from California to Michigan several years ago and I had to pay taxes in both states. I found - at that time - that California's tax laws for students to be very very nice. I got a lot of credits and nice refunds on a regular basis. Must be all those movie stars evening out the tax base.

Given California's economic troubles of late, I'm not sure what the tax situation is now.

-b-
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Any pros/cons to just changing her residency to CA?

Con - wouldn't qualify for resident tuition if she wants to go to grad school in Md and may not qualify as a resident in CA because of the timing.

rad
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