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CA and TX taxes
- 10-10-2010
flz23 posted on October 10, 2010, 4:22 pm
I've read a lot on this forum, but would like to ask a question to verify
if I understand this right. My wife just got a job in Texas and is moving
there in a week. I live and work in California. We will file her as a TX
resident and me as a CA resident. She has no current plans of returning to
CA and I have no current plans of moving to TX, but am open to it if I
find a job there in a few years.
To make things concrete, let's say I make $100,000 and she makes $80,000.
Because both TX and CA are community property states, half of her income
($40k) belongs to me, and half of my income ($50k) belongs to her. If we
filed MFJ for federal, we would have to do the same for CA using 540NR,
even though I am still a CA resident. Then we would have to pay tax on
_all_ of my income ($90k = $50k + $40k) and her CA-source income ($50k)
making a total income of $140k. Is this correct? While had we stayed
single, only I would have to pay state income tax to CA and that would be
for only $100k since TX has no state income tax. So does this mean that we
are being "penalized" for getting married by now needing to pay tax on an
extra $40k? (We got married last month :) ).
Is there a way to get around that tax for the extra $40k by filing
separately? I can't think of it if it's possible.
If I were to register my car and driver's license, register to vote, join
a club, move professional society memberships, and make friends in TX,
would I be able to file as a TX resident even though I work full-time in a
company in CA? Because we are newlyweds, I am planning on flying to TX
frequently to be with her, so any help on the tax of the $40k would help
with plane tickets. I do have a condo in CA, and we are planning on just
renting an apartment in TX, so from a real estate point of view, I do have
more stuff in CA.
Thanks a lot for your help and insight.
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Mark Bole posted on
Re: CA and TX taxes
For 2010, she will be a part-year CA/TX resident, you will be full-year
CA resident. All earnings by either one of you from work performed in
CA during the year are taxable by CA.
Yes, sounds right to me.
While had we stayed
Marriage "penalty" is a moving target; there may well be other tax
benefits, federal or state, from being married that you don't want to
lose. As with investing, tax considerations should probably not be the
deciding factor as to your decision to get married or not.
If you both still lived in CA, you'd be paying state tax on the total
combined income. So you are still getting half of her income free of
state tax, just not all of it.
I don't have statistics, but I suspect your scenario is fairly uncommon,
so that issues of "fairness" in your case gather little attention.
No, because you still have to allocate community income and deductions,
and she would still have to file a CA non-resident return.
If audited, I think CA would claim you are still a resident. Even if
not, the source income from CA (your job) is still going to be taxed by
CA no matter where in the world you (or she) actually reside.
-Mark Bole
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removeps-groups@yahoo.com posted on
Re: CA and TX taxes
The benefits of marriage typically include health insurance coverage
for your spouse (but they both have good jobs and can probably get
their own health insurance from the company they work for), social
security survivorship benefits (although with both spouses working
this may not be an issue).
The additional CA tax on 40k certainly looks like a marriage penalty
to me. This is because it's an artifact of the community property
rules. If the states were Michigan and Minnesota, there would be no
additional on the 40k because they don't have the community income
concept.
As for your last line, not sure I agree either. Your decision to stay
together should not be based on tax issues. Some states will consider
you to be married if you stay together. But your decision of whether
to get that marriage certificate document should factor the tax
considerations.
This is like saying I'm gonna hit you with unnecessary fees, but
because I'm a nice guy I'll give it to you for half price.
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D. Stussy posted on
Re: CA and TX taxes
What you're missing is the state income tax "other state tax credit." You
get a credit on your California taxes for any amounts subjected to TX
income tax, and she gets a credit on her Texas taxes for amounts subjected
to CA income tax.
(If either of you were in Arizona or Virginia, the other state tax credit
flows in the opposite direction.)
========================================= MODERATOR'S COMMENT:
Since when did Texas decide to have an income tax?
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Seth posted on
Re: CA and TX taxes
The credit is for *state income tax paid* on the amount on income,
which, for TX, is $0.
The credit is limited to the amount of TX state income tax on that
amount of income, also $0.
Seth
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Re: CA and TX taxes
If you spent 183 days (in whole or in part) in CA, then CA isn't going
to consider you a non-resident. In any case, your CA-sourced earnings
are subject to CA's income tax.
Seth
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Re: CA and TX taxes
Where is this 183 day rule? I think AZ has it, but not sure if CA
does.
To be clear, the income from the CA company is CA source not because
it's a CA company, but rather because you were present in CA when you
earned that income. If you move to TX and telecommute, your income is
not CA source income.
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Alan posted on
Re: CA and TX taxes
There is no 183 day rule in CA or AZ. AZ and CA law is quite similar. If
domiciled in the state, you are a resident. (See below for an exception
in CA.) If not domiciled but present for other than a temporary or
transitory purpose you are a resident. Both states have a presumption
rule. If you are present for more than 9 months, you are presumed to be
a resident unless you can show satisfactory evidence that your stay was
for a temporary or transitory purpose.
If domiciled in CA but absent from the state for a purpose that is
not temporary or transitory, CA treats you as a nonresident for tax
purposes. I don't know if AZ has this rule.
Whether you are in the state or out of the state for a "temporary or
transitory purpose" depends upon all the facts and circumstances. There
are a variety of decisions by the CA Board of Equalization on this issue.
--
Alan
http://taxtopics.net
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Re: CA and TX taxes
There is also a "Six-month Presumption of Nonresidence Rule" that
applies to seasonal visitors or tourists: if domiciled elsewhere, and
not in the CA for more than a total of six months, the time spent in CA
will be considered to be for a temporary or transitory purpose.
It would not apply to the OP.
-Mark Bole
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Re: CA and TX taxes
Not possible. However, if you have a prenup that specifies that each
of your income is separate income, and your separate income is not
commingled in a joint checking account, then I think the split of
community income does not apply. I heard about this idea before, but
not sure if anybody actually does this.
Making friends in TX definitely does not count!
If you drive in CA, then you have to register your car in CA,
according to the CA DMV. So your car has to be registered in CA.
Other factors are where your kids go to school, etc. The first part
of your post said "and I have no current plans of moving to TX", so
your intent is to be a CA resident. That settles it.
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Re: CA and TX taxes
Wow. Thanks a lot for all the replies and helpful information/insight!
removeps-groups@yahoo.com wrote:
We don't have a prenup. We could do a postnup, but I suppose those won't
count? Our accounts have not been commingled in the last month we've been
together. We have separate bank accounts, and she hasn't started her job
yet.
Hehehe... I meant that in a jocular way. :) I understand that other
non-community property states wouldn't have as big a penalty. This, to me,
doesn't seem like a federal marriage "penalty," but a CA penalty that we
are being hit with. Like you said, just because CA is offering to hit me
with half the fees doesn't make it seem okay.
Also, as mentioned earlier, our decision to be together is never going to
be influenced by taxes. But being together doesn't have to mean we have to
allow ourselves to be gouged several thousand by CA since to us, marriage
is just a legal piece of paper that we don't particularly care for.
Getting a divorce could help if we save several thousand a year. However,
maybe I'm wrong on this and it will come back and haunt me.
Currently, I'm thinking I may have to just suck it up and pay the CA tax
for a few years and decide then. I have no idea what the proceedings for
divorce and fees are like, and whether there are other implications that
I'm neglecting, and whether I'm just being petty about these thousands.
All of your help has been very much appreciated.
Yeah. I said I didn't have any intent. Maybe in the future. Maybe I'll end
up switching jobs.
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Stuart A. Bronstein posted on
Re: CA and TX taxes
If you are in California, you can enter into a postnup that will be
effective. It may not affect the rights of creditors that arise
before the date of the agreement, however.
--
Stu
http://downtoearthlawyer.com
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Tom Russ posted on
Re: CA and TX taxes
Just don't have the McCourt's lawyer draft it. =:-o
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Re: CA and TX taxes
Actually, the extra tax you call a "penalty" is not due to California at
all, it is due to Texas community property laws. If you lived in any
other state with an income tax, nothing would change (bottom line) about
your situation, you would still have one-half of your wife's earnings to
report to your state of residency (and all of your earnings would be
taxable to the state where you earned them).
However, if your wife had changed her domicile to a no-tax,
separate-property state, you would not have the "penalty". So blame
Texas, not California.
-Mark Bole
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