Which State Do I Owe State Income Taxes to?
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Which State Do I Owe State Income Taxes to?
Hypothetical question for the tax gurus here:
If I live in Oregon and work remotely from my Oregon residence as a W-2 employee for a company headquartered out of California, to which state would I owe state income taxes? Please tell me I don't have to pay taxes to both states!?
If I live in Oregon and work remotely from my Oregon residence as a W-2 employee for a company headquartered out of California, to which state would I owe state income taxes? Please tell me I don't have to pay taxes to both states!?
Re: Which State Do I Owe State Income Taxes to?
The jurisdiction indicated in Box 6 of the W-9 or in Box 1a of the W-4.
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Re: Which State Do I Owe State Income Taxes to?
Your employer (I suspect it will be CA).
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Re: Which State Do I Owe State Income Taxes to?
It's not always easy to figure out...
But oddly, your example was cited directly in this link: https://www.cnn.com/2022/03/01/success/ ... index.html
But oddly, your example was cited directly in this link: https://www.cnn.com/2022/03/01/success/ ... index.html
Cohen and her Deloitte colleagues offered this example in a recent article for Tax Notes: “An Oregon resident who works remotely in California is only subject to tax in California on the California liability amount that exceeds the Oregon liability amount. In contrast, a California resident working temporarily in Oregon would not have any Oregon tax liability because the California tax rate on wages exceeds Oregon’s tax rate.”
Re: Which State Do I Owe State Income Taxes to?
Oregon. California has a 'source' rule. If you work at your computer in Portland all day and zoom into California meetings, your work is getting done in Oregon ("source") and not subject to CA income tax.SnowBog wrote: ↑Thu Aug 18, 2022 10:05 pm It's not always easy to figure out...
But oddly, your example was cited directly in this link: https://www.cnn.com/2022/03/01/success/ ... index.html
Cohen and her Deloitte colleagues offered this example in a recent article for Tax Notes: “An Oregon resident who works remotely in California is only subject to tax in California on the California liability amount that exceeds the Oregon liability amount. In contrast, a California resident working temporarily in Oregon would not have any Oregon tax liability because the California tax rate on wages exceeds Oregon’s tax rate.”
Last edited by Big Dog on Thu Aug 18, 2022 10:35 pm, edited 3 times in total.
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Re: Which State Do I Owe State Income Taxes to?
careful... that sounds like an Oregon resident who works remotely (and temporarily) in CA. I was under the impression that CA generally charges income tax based on where the work is done. If you live in another state but are in CA for a few weeks, then CA wants its share of taxes for those few weeks (which might be at a very low or 0% bracket). This matters for Pro sports athletes who fly in for a game or two.SnowBog wrote: ↑Thu Aug 18, 2022 10:05 pm It's not always easy to figure out...
But oddly, your example was cited directly in this link: https://www.cnn.com/2022/03/01/success/ ... index.html
Cohen and her Deloitte colleagues offered this example in a recent article for Tax Notes: “An Oregon resident who works remotely in California is only subject to tax in California on the California liability amount that exceeds the Oregon liability amount. In contrast, a California resident working temporarily in Oregon would not have any Oregon tax liability because the California tax rate on wages exceeds Oregon’s tax rate.”
I thought that, as an employee if the work is performed in another state, and for example, you haven't stepped foot in CA, then CA wouldn't try to tax you even if the employer is a CA company. I once saw something about a notable exception where if you're a 1099 contractor for a CA company, it was very unusual because CA would tax you in that case.
[edit: this article discusses both the case of a remote employee (not taxed) and independent contractor (taxed) https://www.palmspringstaxandtrustlawye ... usinesses/ ]
Last edited by random_walker_77 on Thu Aug 18, 2022 10:34 pm, edited 1 time in total.
Re: Which State Do I Owe State Income Taxes to?
I am not a lawyer, CPA, or tax advisor... I'm only sharing what I think I understand...
In the OP's case - potentially not...
If you earn income while in a state - that state wants to get their share of the taxes on that income. So, assuming that OP earned 100% of their income from California, it presumably would be taxes by CA (since it was "earned" there).
Technically, Oregon wants their cut of taxes as well - since OP is a resident of Oregon.
But most states (the article mentions 5 exceptions) will give a "credit" for the taxes paid to another state. Since CA's taxes are higher than Oregon's taxes, OP will be potentially left without any taxes for Oregon (at least on the income earned while in CA - they may still owe Oregon taxes on interest/dividends/capital gains/etc.).
As the article mentions, if the opposite was the case - then yes, they'd owe taxes to both. They'd pay Oregon the taxes they expect, and then pay CA the delta from the Oregon taxes to what the CA taxes are.
So, the way I understand the article, they will effectively pay the CA tax rates. Either entirely to CA with nothing paid to Oregon, or they'll pay Oregon their amount and the delta to CA.
In the OP's case - potentially not...
If you earn income while in a state - that state wants to get their share of the taxes on that income. So, assuming that OP earned 100% of their income from California, it presumably would be taxes by CA (since it was "earned" there).
Technically, Oregon wants their cut of taxes as well - since OP is a resident of Oregon.
But most states (the article mentions 5 exceptions) will give a "credit" for the taxes paid to another state. Since CA's taxes are higher than Oregon's taxes, OP will be potentially left without any taxes for Oregon (at least on the income earned while in CA - they may still owe Oregon taxes on interest/dividends/capital gains/etc.).
As the article mentions, if the opposite was the case - then yes, they'd owe taxes to both. They'd pay Oregon the taxes they expect, and then pay CA the delta from the Oregon taxes to what the CA taxes are.
So, the way I understand the article, they will effectively pay the CA tax rates. Either entirely to CA with nothing paid to Oregon, or they'll pay Oregon their amount and the delta to CA.
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Re: Which State Do I Owe State Income Taxes to?
You should check with your employer, but generally you just file with Oregon is what I understand.Kookaburra wrote: ↑Thu Aug 18, 2022 7:24 pm Hypothetical question for the tax gurus here:
If I live in Oregon and work remotely from my Oregon residence as a W-2 employee for a company headquartered out of California, to which state would I owe state income taxes? Please tell me I don't have to pay taxes to both states!?
I'm in WA and with a CA-based employer and I do not file with California.
Re: Which State Do I Owe State Income Taxes to?
Again, I am not a lawyer, CPA, or tax advisor... I'm only sharing what I think I understand...random_walker_77 wrote: ↑Thu Aug 18, 2022 10:29 pmcareful... that sounds like an Oregon resident who works remotely (and temporarily) in CA. I was under the impression that CA generally charges income tax based on where the work is done. If you live in another state but are in CA for a few weeks, then CA wants its share of taxes for those few weeks (which might be at a very low or 0% bracket). This matters for Pro sports athletes who fly in for a game or two.SnowBog wrote: ↑Thu Aug 18, 2022 10:05 pm It's not always easy to figure out...
But oddly, your example was cited directly in this link: https://www.cnn.com/2022/03/01/success/ ... index.html
Cohen and her Deloitte colleagues offered this example in a recent article for Tax Notes: “An Oregon resident who works remotely in California is only subject to tax in California on the California liability amount that exceeds the Oregon liability amount. In contrast, a California resident working temporarily in Oregon would not have any Oregon tax liability because the California tax rate on wages exceeds Oregon’s tax rate.”
I thought that, as an employee if the work is performed in another state, and for example, you haven't stepped foot in CA, then CA wouldn't try to tax you even if the employer is a CA company. I once saw something about a notable exception where if you're a 1099 contractor for a CA company, it was very unusual because CA would tax you in that case.
But the short version is this is a royal mess... Each of the 50 states deals with this differently, with very little consistency. The article is entirely written related to "remote work", so it's not just "having to be physically present in the state."
From an "enforcement" perspective, this is usually only imposed on pro athletes, entertainers, etc. - those making enough to make it worthwhile I suppose... But just because it may not be enforced, or widely known, doesn't mean a state couldn't come after you for taxes they think are owed at some point...
My employer was going down this path right before the pandemic hit, at the time not focused on "remote work", more on "travel". But that didn't really make it any better. For example, some states believe that if you check your work email for 1 minute while on the ground at the airport on a layover (aka you never even "set foot" in the state), that you owe them taxes on the income from that day's work (even if again you weren't even there for a day). My employer was implementing a new system that kept track of your travel, kept track of "minimum" days before income needs to be reported (some might only require it if more than X days, others might immediately), and then they were going to deal with all the state withholding (we just had to deal with state tax filings).
Another one that still blows my mind... Part of my income is stock grants that vest over X years. Per the above, if we crossed the threshold for a state for tax reporting, not only do we have to pay taxes on our "normal" income for those days - but also our variable income such as stock grants. But it gets "better", we get to do so for the pro-rated amount for the rest of the X years vesting. For example, let's say we get $9.000 in stock that vests over 3 years, and crossed a state's threshold of say 10 days. We have to include 2.7% (10/365) of that $9,000 as income, with the first $82.19 (2.7% of the first $3k vest) added in the first year, and then keep doing so for each subsequent vest - until all grants gained the year we had to report to the state are done...
Luckily, I haven't resumed traveling nor done any remote work since... And candidly, part of my thought process when I'm asked to travel is "do I really want to have to file taxes with that state for multiple years?" It's a bit crazy...
Re: Which State Do I Owe State Income Taxes to?
+1Marseille07 wrote: ↑Thu Aug 18, 2022 10:34 pmYou should check with your employer, but generally you just file with Oregon is what I understand.Kookaburra wrote: ↑Thu Aug 18, 2022 7:24 pm Hypothetical question for the tax gurus here:
If I live in Oregon and work remotely from my Oregon residence as a W-2 employee for a company headquartered out of California, to which state would I owe state income taxes? Please tell me I don't have to pay taxes to both states!?
I'm in WA and with a CA-based employer and I do not file with California.
I can't fathom states would go after individuals (again unless they make serious bank to make it worth their while)...
For clarity - you should pay all the taxes you owe (and no more)...
But I think the burden is supposed to be on employers to properly withhold taxes as required based on where they exist, you live/work, etc. So, as a W2 employee - just fill out your W4 correctly - and let your employer's payroll department figure it out.
Now, if you go and "remote work" and don't tell your employer - that's where you are potentially creating tax liability - that most people aren't aware of...
Last edited by SnowBog on Thu Aug 18, 2022 11:34 pm, edited 1 time in total.
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Re: Which State Do I Owe State Income Taxes to?
I moved out of CA during the pandemic. The employer is aware, this is not a sneak-out situation. I have no advice if the OP is trying to pull a quick one.SnowBog wrote: ↑Thu Aug 18, 2022 10:50 pm +1
I can't fathom states would go after individuals (again unless they make serious bank to make it worth their while)...
That isn't to imply I think you should not pay the taxes owed... You should!
But I think the burden is supposed to be on employers to properly without taxes. So, as a W2 employer - just fill out your W4 correctly - and let your employer's payroll department figure it out.
Now, if you go and "remote work" and don't tell your employer - that's where you are potentially creating tax liability - that most people aren't aware of...
In fact CA was withholding my taxes until I updated my address with the company and I had some refund from CA this past tax year because of that.
Re: Which State Do I Owe State Income Taxes to?
You would owe state income tax to Oregon, not California -- at least according to this Palm Springs tax attorney:Kookaburra wrote: ↑Thu Aug 18, 2022 7:24 pm If I live in Oregon and work remotely from my Oregon residence as a W-2 employee for a company headquartered out of California, to which state would I owe state income taxes?
https://www.palmspringstaxandtrustlawye ... usinesses/
Re: Which State Do I Owe State Income Taxes to?
Your income is only taxed by Oregon, and not by California. You are taxed by both your state of residence and the state of the source of the income, but both of them in this case is Oregon. California considers the income to be Oregon-sourced because you performed the work while in Oregon. See California FTB Publication 1031, section I, "Income Taxable by California" (page 6):
Nonresidents of California are taxed only on income from California sources.
Wages and Salaries
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.
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Re: Which State Do I Owe State Income Taxes to?
If you live in Oregon and work in Oregon, you should only be subject to taxes in Oregon. The fact that your company has a headquarters in California shouldn't matter. However, to make this work your employer has to fill out your W-2 correctly. This usually happens if you fill out your W-4 correctly. If your W-2 is wrong, contact your HR department.
Re: Which State Do I Owe State Income Taxes to?
What does “live” mean in the original post? Serious question. Are you a couch surfer? Tell us moreKookaburra wrote: ↑Thu Aug 18, 2022 9:41 pmAnd who/what determines which state goes in those boxes?
Are you a U.S. citizen with green card or passport?
Re: Which State Do I Owe State Income Taxes to?
Yeah, I would pretty much quit at that point, or at least refuse to travel to states that are draconian about it. At some point, like if you work 60+ days in one state, I think it's only fair. But to be put through that amount of hassle for something like a 2-night trip would be over the top. Even for the 60+ day scenario, I'd be asking my employer to refund those state taxes since I accrued them while working at their behest.SnowBog wrote: ↑Thu Aug 18, 2022 10:47 pm My employer was going down this path right before the pandemic hit, at the time not focused on "remote work", more on "travel". But that didn't really make it any better. For example, some states believe that if you check your work email for 1 minute while on the ground at the airport on a layover (aka you never even "set foot" in the state), that you owe them taxes on the income from that day's work (even if again you weren't even there for a day). My employer was implementing a new system that kept track of your travel, kept track of "minimum" days before income needs to be reported (some might only require it if more than X days, others might immediately), and then they were going to deal with all the state withholding (we just had to deal with state tax filings).
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Re: Which State Do I Owe State Income Taxes to?
How your employer reports is important. Some examples in my own family:
I worked for 8 years as an employee of a New Hampshire company. No income tax in New Hampshire. But I lived in Massachusetts. My job had me covering and travelling to Florida, Georgia, Alabama, North and South Carolina, Virginia, Maryland, Delaware and Pennsylvania. My state tax was ONLY Massachusetts. I never, ever filed any other state tax forms. Later, my territory was changed to Pennsylvania, Delaware, New Jersey, New York, all of New England, all of Canada, Ohio, Indiana, Michigan, Kentucky, Wisconsin and Illinois. I filed taxes ONLY in Massachusetts.
DW worked for several years for a Rhode Island company. She lived only in Massachusetts and worked only from home. The first year, the company mistakenly marked her state as Rhode Island. In our tax returns, our tax preparer did what was necessary to get all Rhode Island taxes refunded and for us to send money to Massachusetts. They advised that we correct her employer. Why? Because it would save us the $75 state preparation fee for the extra state. No tax was ever owed to or paid without full refund to Rhode Island.
I have no idea with California.
I worked for 8 years as an employee of a New Hampshire company. No income tax in New Hampshire. But I lived in Massachusetts. My job had me covering and travelling to Florida, Georgia, Alabama, North and South Carolina, Virginia, Maryland, Delaware and Pennsylvania. My state tax was ONLY Massachusetts. I never, ever filed any other state tax forms. Later, my territory was changed to Pennsylvania, Delaware, New Jersey, New York, all of New England, all of Canada, Ohio, Indiana, Michigan, Kentucky, Wisconsin and Illinois. I filed taxes ONLY in Massachusetts.
DW worked for several years for a Rhode Island company. She lived only in Massachusetts and worked only from home. The first year, the company mistakenly marked her state as Rhode Island. In our tax returns, our tax preparer did what was necessary to get all Rhode Island taxes refunded and for us to send money to Massachusetts. They advised that we correct her employer. Why? Because it would save us the $75 state preparation fee for the extra state. No tax was ever owed to or paid without full refund to Rhode Island.
I have no idea with California.
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Re: Which State Do I Owe State Income Taxes to?
Not sure why you need to ask these questions. Assume an apartment or a house?
By definition, GC holders are not US citizens; but it's irrelevant to the question being asked. We need to be respectful of their personal circumstances.
Re: Which State Do I Owe State Income Taxes to?
This is the right answer to OP's specific case - directly from the California FTB documentation. I'm in a similar boat as the OP - nonresident of California, but company is based in CA, and I'm a W2 employee - and this is the exact interpretation I'm using. Taxes from my current state (ie where I live) are taken out of my paycheck, nothing from CA.newacct wrote: ↑Fri Aug 19, 2022 12:38 am Your income is only taxed by Oregon, and not by California. You are taxed by both your state of residence and the state of the source of the income, but both of them in this case is Oregon. California considers the income to be Oregon-sourced because you performed the work while in Oregon. See California FTB Publication 1031, section I, "Income Taxable by California" (page 6):Nonresidents of California are taxed only on income from California sources.Wages and Salaries
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.
It is important to state that this advice applies specifically to W-2 employees who are nonresidents of CA. My recollection was that, if the OP was a 1099 contractor, there may be some CA tax involved. But not the case for the OP since he/she is a W2 employee.
Re: Which State Do I Owe State Income Taxes to?
Great example. What tax jurisdiction is listed in Box 1a of the W-4 in this case?cockersx3 wrote: ↑Fri Aug 19, 2022 11:09 amThis is the right answer to OP's specific case - directly from the California FTB documentation. I'm in a similar boat as the OP - nonresident of California, but company is based in CA, and I'm a W2 employee - and this is the exact interpretation I'm using. Taxes from my current state (ie where I live) are taken out of my paycheck, nothing from CA.newacct wrote: ↑Fri Aug 19, 2022 12:38 am Your income is only taxed by Oregon, and not by California. You are taxed by both your state of residence and the state of the source of the income, but both of them in this case is Oregon. California considers the income to be Oregon-sourced because you performed the work while in Oregon. See California FTB Publication 1031, section I, "Income Taxable by California" (page 6):Nonresidents of California are taxed only on income from California sources.Wages and Salaries
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.
It is important to state that this advice applies specifically to W-2 employees who are nonresidents of CA. My recollection was that, if the OP was a 1099 contractor, there may be some CA tax involved. But not the case for the OP since he/she is a W2 employee.
Re: Which State Do I Owe State Income Taxes to?
I don't understand why you're asking this. W-4 is filled out by the employee and 1a is the employee's current address - nothing to do with what state the employee is working in. The employer has nothing to do with what is put in 1a. And a W-4 is a federal document that has nothing to do with state income or withholding.
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Re: Which State Do I Owe State Income Taxes to?
Thanks, everyone. It sounds like Oregon is the winner.
Re: Which State Do I Owe State Income Taxes to?
Not entirely true.lstone19 wrote: ↑Fri Aug 19, 2022 12:06 pmI don't understand why you're asking this. W-4 is filled out by the employee and 1a is the employee's current address - nothing to do with what state the employee is working in. The employer has nothing to do with what is put in 1a. And a W-4 is a federal document that has nothing to do with state income or withholding.
Some states will accept the W4 for state taxes as well. At least my state does. I can optionally file the state version if I want to make state adjustments, but I don't have to...
Re: Which State Do I Owe State Income Taxes to?
True but better to say some states tell employers to use the W-4 numbers if the employee does not complete the state version. Those forms go to employers, not government, so unless requested, the government tax bodies never see them.SnowBog wrote: ↑Sat Aug 20, 2022 1:07 pmNot entirely true.lstone19 wrote: ↑Fri Aug 19, 2022 12:06 pmI don't understand why you're asking this. W-4 is filled out by the employee and 1a is the employee's current address - nothing to do with what state the employee is working in. The employer has nothing to do with what is put in 1a. And a W-4 is a federal document that has nothing to do with state income or withholding.
Some states will accept the W4 for state taxes as well. At least my state does. I can optionally file the state version if I want to make state adjustments, but I don't have to...
My employer had us update via updating our employee record. Address came from elsewhere. What state they withheld for was based on residence as declared elsewhere and work location. Address from an old W-4 was not a factor. I suspect most large multi-state employers have their own internal way to declare your residence.
Re: Which State Do I Owe State Income Taxes to?
CA has the highest marginal tax rate among all the states, but for most taxpayers OR individual income taxes are higher than CA. Not having done an exact calculation comparison, I believe OR individual income taxes are higher than CA income taxes unless taxable income exceeds an amount somewhere in the upper 6 figures.