Solved

2023 Year End Bonus if Moving States During 2023

Forum|Forum|2 years ago
October 6, 2023
2 replies
0 views

Hi, I am planning to officially move from CA to UT in mid-October 2023. My employer will change my place of residence accordingly. My year end bonus is payable in mid-December 2023 (we have a fiscal year end of Sept 30th) and my bonus will likely be 3x as large as my salary. My bonus is based on performance from Oct 2022 (the beginning of FY 2023) through Sept 2023 but I won't be informed of amount or receive such payment until later in calendar Q4 2023.

Is it risky for me to claim Utah residency for this bonus? Is it likely CA will pursue me? There is an 8% delta between the UT state tax income rate of 4.95% and the highest tier in CA.

Any advice would be greatly appreciated.

Best answer by TomD8

It works like this:

Your bonus will be taxable by California regardless of your state of residence at the time you receive it. That's because it represents compensation for services you performed in California, thus making it "California-source" income. CA can tax non-residents on California-source income.

If you receive it after you become a Utah resident, it will also be taxable by Utah. Utah residents are taxed on all their income, regardless of its source. However, in this situation Utah will grant you a credit for taxes paid to California on income that is taxed by both states. Thus in actuality you won't be double-taxed.

Residency for state tax purposes isn't something you "claim". It's determined by state law. Utah will consider you a resident for tax purposes as soon as you begin living in Utah with the purpose of making it your new permanent home - your domicile in tax terminology. See "Test 3" in this Utah tax reference:

https://incometax.utah.gov/instructions/utah-domicile

You can only have one domicile at a time. Conversely, you become a non-resident of California when you abandon your domicile in California and establish it in a new state.

If you move in 2023, for tax year 2023 you will file a part-year resident tax return in each of the two states. TurboTax can handle this common situation.

A

Anonymous_

Employee

I'll page @Critter-3

T

TomD8Answer

Employee

It works like this:

Your bonus will be taxable by California regardless of your state of residence at the time you receive it. That's because it represents compensation for services you performed in California, thus making it "California-source" income. CA can tax non-residents on California-source income.

If you receive it after you become a Utah resident, it will also be taxable by Utah. Utah residents are taxed on all their income, regardless of its source. However, in this situation Utah will grant you a credit for taxes paid to California on income that is taxed by both states. Thus in actuality you won't be double-taxed.

Residency for state tax purposes isn't something you "claim". It's determined by state law. Utah will consider you a resident for tax purposes as soon as you begin living in Utah with the purpose of making it your new permanent home - your domicile in tax terminology. See "Test 3" in this Utah tax reference:

https://incometax.utah.gov/instructions/utah-domicile

You can only have one domicile at a time. Conversely, you become a non-resident of California when you abandon your domicile in California and establish it in a new state.

If you move in 2023, for tax year 2023 you will file a part-year resident tax return in each of the two states. TurboTax can handle this common situation.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

N

NCPERSON1

@LAtoParkCity one small clarification. While UT will give you credit for taxes paid to CA, normally, states only give you the credit that you would have paid to its state or what you actually paid to the other state, whichever is lower.

So if you pay $10,000 on the bonus to CA when you were already a UT resident, and if it were paid to UT, the tax would have been $2000, the tax credit on the UT tax return will be $2000 - not $10,000.