Client moved, got big settlement

[joanmcq]

I need to get dates & all established, but my client moved from CA to CO sometime in 2022.  She actually spent time in CO in 2021 but most of her time was spent in San Diego so I filed CA resident.  Anyways, she sued a prior employer in Nov. 2021 and got a settlement in Aug. 2022.  40k paid on W2, 360k to her (and her attorneys).

I need to verify but the suit was something to do with violation of the labor code and retaliation.  I believe it is covered by the discrimination statutes. But which state taxes it, CA or CO?  Or both?  She lived in CO, but the wage income is for when she lived in CA.  I believe both states will tax because she lived in CO but got CA source income.

Thoughts?

[BulldogTom]

Not sure about the CO side, but since the employment was in CA, and the award related to the work performed in CA, and the court that awarded the judgement was in CA, I am pretty confident that your client has CA source income that needs to be reported on a PY tax return.

Does CO tax worldwide income like CA does?   Do they offer an Other States Tax Credit like CA does?   If so, that is how to handle the CO resident return.

Tom
Longview, TX

[BulldogTom]

@joanmcq the more I think about this, I started to question the domicile of the taxpayer.   Did they really leave CA and establish domicile in CO before the end of the year.   Domicile cuts both ways, it is not only a tool for the FTB to claw back out of state income.   If, and only you will know this, the taxpayer did not make a clean break from CA before the end of they year, you could file her as a CA resident and a PY resident of CO for 2022 and claim the taxes paid to CO as Other State Taxes paid.   It might be cleaner for the purposes of an audit (if that were to happen).  

Just thinking out loud.  Might be worth looking at.

Tom
Longview, TX