Double taxation between CA-NY-NJ

Question

I've moved from California (working in California) to New Jersey working in New York. I've remained with the same employer (which has California and New York offices).

I learned that NY calculates its income tax off my federal income, which it then allows me to multiply by an income allocation ratio (denoted as percentage or number of days in the year).

For sake of example, let's assume:

From January 1, I worked in California.
On July 1, I relocated to New Jersey and to the New York office.
I worked in the New York office until the end of the year.
In the California office my wage was $4,000 monthly.
In the New York office my wage was reduced to $2,000 monthly.

This would make my federal wage at $4,000 * 6 + $2,000 * 6 = $36,000.

California would tax $4,000 * 6 months = $24,000 of my income.
New York would look at the federal income ($36,000), then based on me working in New York for half the year, applying 50% income allocation would have New York tax $18,000 of my income.

Summing it up, I'll be taxed over $42,000, which is higher than my income, and looks like double taxation to me. Since neither California nor New York treat me as a resident, I'm unable to apply for resident tax credits with either of them. I can apply for resident tax credits with New Jersey, but this can at most zero out my tax liability with New Jersey.

Is there any way to get out of this double-taxation?

Is it permissible to use the NY "income allocation" as means to getting a "fair" amount to pay NY taxes for?
Can I leverage my status in California as a part-time resident for tax credits for NY taxes?

ErnieS0 · Accepted Answer

Hi Linda,

Thank you for the answer. I read over the docs linked.

I guess I'm still confused, especially based on the answers previously in this thread.

"

Essentially, you can get a credit in each of the states you were a resident of if the income is taxed twice. This will avoid any double taxation. The input will depend upon the state reflected on your W-2, Box 15 for state source wages.
"

In the original question, the OP was a nonresident of both CA and NY, and was able to get credit in CA for taxes paid in NY.

Currently, I'm a resident of NY - so this means I cannot get credit in CA for taxes paid in NY? Even though the same double tax rules apply?

Yes. You will claim a credit on your resident tax return for tax paid to another state. California has a few odd rules allowing to you claim the credit on the nonresident return, but that doesn’t apply to New York residency.

In the original question, the Op either made an incorrect assumption or had RSUs or other income that was double taxed by California and New York.

The OP said she made $12,000 in NY ($2,000 x 6), but then said her NY income was $18,000, or half her federal income. That would be incorrect if she only made $12,000 based on her pay stubs. NY only taxes you on what you actually earned. It does not tax you on total federal income divided by the months you were a resident.

The second case is if the OP had RSUs or other California-sourced income that was earned as a result of CA employment but received while living in NY because the OP worked for the same employer. In that case, the OP could claim a credit on the NY return, because the amount is included in both CA and NY income.

@rajaman

JotikaT2 · Answer

Yes.  You can claim a credit in California for taxes paid on the income earned while a resident of California but also taxed in New York. You can also get a credit in New Jersey for the taxes paid in New York while you were a New Jersey resident. You should be filing two part-year resident state tax returns for California and New Jersey, and one nonresident New York state tax return.   In the "My Info" section of TurboTax, confirm that you have entered the correct state information: Click "Edit" to the right of your name Confirm your input under #2 "Tell us the state(s) you lived in" Confirm the rest of the state-specific questions here as well including the "previous state of residence" and "date you became a resident" of the state noted Do the same for your spouse if you are married filing jointly. Go back to the personal information section, and verify the mailing address and "Other state income" section.Review your input on your W-2 Wages under the "Income & Expenses" section.Confirm that you have entered the correct state for each W-2 in Boxes 14-15. This will then allow you to enter your state returns for the nonresident state as well as the part-year resident states. Prepare your nonresident New York return first.  Pay attention to the information on each screen to ensure the nonresident return is calculated correctly.  After you have entered all of your New York information, you will see a screen like the one below.  Make sure to write down the Allocated NYS tax.  You will need this number to claim a credit for the income earned and taxed in both California and New York.  Next, prepare your part-year California resident return.  You will again follow through the screens to ensure you have allocated only the income earned while you were a resident of California.  You will then see a screen that you can edit to ensure you receive credit for income taxed by New York while you were a California resident.  Finally, prepare your part-year New Jersey resident tax return.  You will be able to get a credit for the taxes paid to New York while you resided in New Jersey. Essentially, you can get a credit in each of the states you were a resident of if the income is taxed twice.  This will avoid any double taxation.  The input will depend upon the state reflected on your W-2, Box 15 for state source wages.