Liability for CA income tax

Yes.

1) the compensation was received for services performed in CA, hence it is CA source income.

Per CA FTB Pub 1031:

"Wages and salaries have a source where the services are performed. Neither the location of the employer, where the payment is issued, nor your location when you receive payment affect the source of this income."

2) if he stopped working in Nov 2009, everything received after that was essentially severance pay, right? When did he have constructive receipt of this severance pay? If the agreement was worked out in Nov 2009 but payment was spread over several months for the employer's convenience, I'd say it was constructively received in Nov 2009, when he was a CA resident.

Based on either or both of the above, it is CA source income, taxable to CA.

Incidentally, isn't it cool you can get laid off in one state, and collect UC benefits in another?

Since NC statute of limitations (SOL) is three years and CA is four, yes that could happen, if he filed incorrectly (not reporting CA source income) on his original returns.

-Mark Bole

It's still CA _source_ income, isn't it?

Seth

[snip]

While we don't necessarily have all the facts, the OP said that the person was kept on the payroll and carried as an employee. As such, I would say you don't have severance pay.

Either way, I don't think a person can have constructive receipt of compensation that is not made available to him by the employer whether for the employer's convenience or not. If the employer makes it available, you could have constructive receipt. In this case, it appears that the January compensation was not made available in 2009 and is therefore 2010 CA source income. I will assume that the 2009 W-2 did not contain the January compensation.

If the employee never had the ability to receive it in 2009, then there was no constructive receipt in 2009.

If you meant the employeE's convenience, then there could be constructive receipt.

Seth

As both you and Seth point out, I probably should have left my second point about constructive receipt out of my reply, or rephrased it to depend on the details.

I was not trying to address the timing of the income, just the source, and thought constructive receipt might be a back-up or secondary reason to consider it CA source income. As a cash-basis taxpayer, the wage income received in 2010 would be 2010 income, of course.

My impression (unconfirmed) was that the extended payroll arrangement was a way to continue providing tax-free benefits to the employee for a period of time. Since the whole point of laying someone off (as opposed to firing them) is to lower expenses when there is not enough work, it makes no sense for the employer to keep the laid-off employee on the payroll for so long, unless there was some side deal, to accept the extra months of "employment" in lieu of a lump-sum severance payment.

Or, perhaps the employer was simply trying to avoid taking a "hit" to their CA unemployment tax rate, by waiting until the ex-employee was safely out of the state before he could file the claim for unemployment (with another state...)?

-Mark Bole

It will probably be administered by the state of residence, but payment comes from the state where employment took place (and unemployment tax was paid). Similarly, the amount is based on the rules of the work state, not the new residence state.

Perhaps delaying the claim into a new calendar year helped the company (or at least delayed the hit).

Seth