Question

Taxes paid to another state: still owing a lot after the tax credit

Forum|Forum|4 years ago
February 7, 2022
2 replies
0 views

Hello,

I live in Illinois but work for a company in California, which is W2 income (~$18,000). I also have a very small amount of 1099 and Schedule C Business Income out of Illinois (about $1000)

After finishing my nonresident return for California, it says that my taxes paid to California is only $52 on about $18k of income. I am given a refund of $117 as well. When I go to enter the $52 of tax credit into my resident Illinois return, it shows that I still owe Illinois $671. This seems so high, and the tax credit also seems so low! Is it normal to owe this much to your resident state just because you work in a different one?

I know I also mentioned the 1099 and Schedule C income tied to Illinois. However, I included several business deductions, enough to be getting a federal refund of $1,141 (between employee and business combined). Not sure if that means Illinois is not taking these deductions into consideration, or if the $671 I owe to Illinois has to do with the W2 California income not giving me an adequate tax credit.

T

TomD8

Employee

Are you a remote worker working from an Illinois location? You need to be aware of these rules:

California taxes non-residents only on CA-source income. W2 income is "sourced" where the work is actually (physically) performed. Therefore, if your work is 100% performed from an IL location, the income from that work is not taxed by CA.

On the other hand, CA does tax the self-employment income of non-residents who perform services for clients located in CA, regardless of where the sole proprietor performs the work.

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

A

alexadavisxoAuthor

Yes, working from an Illinois location. I did not know that! Does that mean I should speak with my California employer about withholding my taxes for Illinois? Currently all my withholding taxes on the W2 is for California.

SteamTrain

Employee

Edited the above to account for a Single person's personal exemption amount...makes it even closer.

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

SteamTrain

Employee

The IL tax rate is flat (at 4.95%)....so for you (if Single and not age 65 or older) the tax on the 18k of W-2 income alone is:

18,000-2375= 15,625

15625 x 0.0495 = $773

$773- 52 = $721

You may have had some other deductions, but you have no personal exemption $$, and unless you have some special deductions or credits to use, those may be the reason it's dropped to $671....but the amount does not seem to be out of range.

The credit for taxes paid to CA is just the amount that CA "kept" not what they withheld.....so if the CA nonresident return refunded all but $52, then that's the MAX of the credit you get for IL .

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*