Source tax

[TAX4US]

TP works from home in NV. Is paid by a CA employer. Is this income taxed to CA as a NON Resident. TP never goes to CA. All work is done by internet and phone. My take it is. The CA employer filed the w-2 with NV being in the state box and matches the Wages in Box 1.

[JudyL]

TP works from home in NV. Is paid by a CA employer. Is this income taxed to CA as a NON Resident. TP never goes to CA. All work is done by internet and phone. My take it is. The CA employer filed the w-2 with NV being in the state box and matches the Wages in Box 1.

In this client's case, I'd use the W-2 as prepared.

If the employee is a nonresident and never sets foot in CA, the wages would not be taxed in CA. If the person does make an appearance within the state, that's a different story. CA uses a "source rule" to determine this.

You can read it here under "compensation" : https://www.ftb.ca.gov/individuals/f...esidents.shtml

Also, here is a very good article that explains it too. Its focus is on the CA auditing businesses with remote employees, but the explanation is there: http://www.sangerlaw.com/Articles/No...ngRemotely.pdf

[Maribeth]

I have the exact factual pattern except taxpayer is a resident of Idaho. Wages are NOT subject to California tax. No filing is done in California. W-2 shows all wages as Idaho.

[ATSMAN]

If the CA employer did not withhold for CA and taxpayer never sets foot in CA related to that work, absent other facts I would not file a CA non resident return.

I have a client in MA that occasionally consults with a CA company (former employer, without any location in MA) and 1099 or W2 is issued with Fed withholding only. He pays estimated MA taxes for all incomes taxable in MA.

[Snaggletooth]

Five States

Five states have ruled that telecommuting work done at home will be taxable under their state if the employer is in their state. I don't remember which states, but four of them are in the Northeast plus Nebraska. This is infectious, as other tax-hungry states should salivate at the idea and follow suit. I don't know anything that can stop them, except a possible decision by the US Supreme Court.

If a worker never enters the state of the employer, it will be difficult to enforce should the employee refuse to file. However, these states will direct their employers to issue W-2s showing the employer's state as being taxable, and also withhold state tax on the employee. These states can also have their employers to garnish paychecks.

Interstate squabbling has been going on for years as to what constitutes "source" income, and every state wants to interpret this to their own advantage. The US Supreme Court came to the rescue of taxpayers drawing a pension from another state, and it would be helpful if they did the same here, but this is highly unlikely. Another answer would be an agreed-upon tax compact among the states but that would require give-and-take, and states are only half-interested (the "take" half).

[Gretel]

In this client's case, I'd use the W-2 as prepared.

If the employee is a nonresident and never sets foot in CA, the wages would not be taxed in CA. If the person does make an appearance within the state, that's a different story. CA uses a "source rule" to determine this.

You can read it here under "compensation" : https://www.ftb.ca.gov/individuals/f...esidents.shtml

Also, here is a very good article that explains it too. Its focus is on the CA auditing businesses with remote employees, but the explanation is there: http://www.sangerlaw.com/Articles/No...ngRemotely.pdf

Thank you so much for posting these links, it very helpful for one of my clients.

[mactoolsix]

CONVENIENCE VS. NECESSITY

Doesn't sound like it applies here, but a similar article:

http://www.journalofaccountancy.com/issues/2009/jun/20091371.html

Mike