telecommuting to CA - CA state tax liability?

I telecommuted to NJ from Ohio, and the company sought a temp employer for me so I wouldn't be an independent contractor ; their first choice for temp agency rejected itself because they had no license in Ohio; so another was picked instead.

Which indicates, to me, that the state you work in, rules.

The general rule is that you have to pay California tax on your California source income. If the company operates in many states and/ or countries, they somehow get around this rule. Maybe the company is registered in Nevada or something. Not sure how it works. And to which state were SDI (disability) and FUTA (unemployment) paid?

If you NEVER step into the state, then there's no state taxes. However, you (and your employer) still subject to both income and payroll taxes in the state where you live.

If you visit the employer's office in California, even once a year for a day, you then become subject to the state's taxes. Alot of sports players have been hit with this for their "away from home" games. Whether you're hit just on the income for the time that you're in California or all of it may depend on facts you haven't stated.

Interesting. I have visited my employer in CA for short periods, is the tax somehow prorated as a fraction of the year? Which other facts are used to determine this?

In response to the question from an earlier post, I don't think my employer withheld anything for SDI or FUTA.

Thanks for the responses.

You are subject to California tax on your income earned by performing services for your employer in California. You prorate by the days, assuming your income was earned evenly over the year. Your employer should be withholding California tax on your California earnings. You will file a nonresident return with California to pay tax on your California source earnings. If your total income from all sources is above the California filing requirement for your filing status, you are required to file a return; however, if your CA source income is not enough to create a tax liability, there is no penalty for not filing.

California will not tax your earnings from services performed outside California, including at your home in Texas.

Katie in San Diego

In spite of the fact that Katie is the resident authority on State Taxation, do not be surprised if Kal-e-Forn-YA attempts to tax you on all of your income. They tried to tax a satellite passing overhead!

Be prepared! Keep a record of the days for which you were both paid and in California. Get a CPA, an EA, or a Tax attorney in Texas to advise you on this.

The best time to do tax planning is before you earn income.

Dick

The above sentence is ambiguous to me because it is not clear whether "in California" refers to the "You" (the employee) or the "employer".

Do you mean

1. You are subject to California tax on your income earned by performing services for your employer, and the employer is based in California.
2. You are subject to California tax on your income earned by performing services for your employer, while the employee is based in California.

The employer, as a corporation (presumedly) is a "resident" of California since it has offices here.

The employee, living outside of California (really, "tax home" - but I'm trying to keep it simple), may be taxed while present in the state.

Dick Adams said; "In spite of the fact that Katie is the resident authority on State Taxation, do not be surprised if Kal-e-Forn-YA attempts to tax you on all of your income. They tried to tax a satellite passing overhead!

Be prepared! Keep a record of the days for which you were both paid and in California. Get a CPA, an EA, or a Tax attorney in Texas to advise you on this.

The best time to do tax planning is before you earn income.

Dick "

And I agree, Califfornee taxation is oftentimes twisted and sometimes brutal. The thing is it won't matter until it comes to their attention BUT the methods that it may come to their attention may have nothing to do with you per se. Your employer gets (may get) audited by them to ensure compliance with the various tax collection and remittance areas. They do that A LOT.

Better to get this right NOW, before you get caught in the bowels of bureaucracy! They are significantly easier to deal with on a proactive basis rather than after the fact. My dealings have been in the area of business and sales tax collections but the mind set is the same.

The employer may or may not be a taxpayer in California, although if it has employees performing services in the state it is probably a taxpayer. That has NOTHING WHATEVER TO DO with the taxability of a nonresident EMPLOYEE's compensation, which is taxable at the location where the services to earn it were performed.

So, the fact that the employer is based in or is taxable in California does not make the employee's compensation taxable. It's the place where the employee performs the service that makes the employee's compensation taxable. This is almost universally the case in states that impose comprehensive individual income taxes.

The great outlier, of course, is New York; if you work for a NY employer, and spend any time working for the employer in NY, all of your compensation from that employment is subject to NY tax unless you perform your services outside NY by necessity (because, by their nature, the services could not have been performed in NY) and not for the convenience of either the employee or the employer. So, a telecommuter, living and working at home outside NY, is usually subject to NY tax on all of his or her compensation even though only a small part of it was earned by working in NY. There are now some convoluted rules by which it can be determined that a telecommuter's home is a "bona fide location" of the employer to avoid this result. Anyway, as far as I know, NY is the only state that has such a crazy rule.

Katie in San Diego

But if the telecommuter never does any work in NY for that employer, and never sets foot in the employer's place of business in NY, then none of his income is subject to NY tax? Is that right? Would that be true regardless of necessity or convenience?

Also, if I understand correctly, the NY rules about telecommuters apply only to employees. A legitimate independent contractor from another state would not be taxed by NY on his entire income from a NY client if he did most of the work in his own state, and only visited the client in NY occasionally. Is that correct?

Bob Sandler

Right on both counts, Bob. Ref. NYCRR 132.18(a).

Katie in San Diego