Remote Work and California State Taxes: the Complexity of Multi-state Residency

The Pandemic has changed a lot of things, among them: tax exposure. Many San Francisco Bay Area residents are now working remotely, and this “remote work” can create some new tax liabilities. How so? Well, as is always true with taxation: it depends. Let’s look at some common scenarios:

  1. You Work for a California Business and Continue to Live in California. Here, your employer is a “California corporation” and you are a “California citizen.” Even if you used to commute up to San Francisco, but now you work “from home,” the city and state where you work has not changed. This means that there is no change in tax liability.Tax Preparation for Remote Workers
  2. You’ve Moved Out (Permanently) of California. Here, we’ll assume you used to work in person for a California business. But now, due to the Pandemic, you have “permanently moved” to another state. Now, it gets complicated. Depending on your physical status in California, you may or may not be facing both California income taxes AND taxes in your new state. Some states such as Texas, Nevada, and Florida, do not have a state income tax. Other states such as Oklahoma, New York, or Massachusetts do have a state income tax. So in these situations, you may face both California state tax AND tax in your “new state” of residence. One variable is how many days you spent in California working (if at all), and whether your status is as employee or contractor. It’s complicated!
  3. You’ve Haven’t Moved Permanently. You Split Time. Here, perhaps you split time in California and in other state, but – again – you work remotely. Different tax scenarios will apply depending on whether you spent time physically in California and/or the other state.

Those are just the three basic scenarios. Another scenario is if you own a California corporation and that income “is generated by” business in California yet you live in another state. Here you have both corporate and personal tax issues. It all really depends.  If you’re facing any of these scenarios, reach out to our qualified tax advisors, and let us help you with figuring out not only your tax liability but your best strategy to minimize these potential “double taxation” problems. And yet another factor: state tax reciprocity. Some states have agreements with other states about these sorts of tax issues, and in some scenarios, you can avoid a “double taxation” problem. It really depends.

Book a Consultation with a Tax Professional

The new normal of “work from home” creates some complicated tax scenarios. Fortunately, our CPA firm excels at “multistate tax issues.” Contact us today for a consultation, whether or not your currently live in San Francisco or are now “working from home” or “working remotely” from some other state.

 

 

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