Employer reported wages to incorrect state

[David]

TP transferred with same employer from CA in 2009. Employer erroneously reported part of 2010 W-2 wages as CA wages. Employer will not issue a coorected W-2 and told the TP to just file a CA NR return to get his money back.

His wife moved from CA during 2010 so there will be a part-year resident return filed for CA.

My question is how to handle reporting the CA wages as CO wages. Since the return is being e-filed, I have to report the W-2 as issued by the employer don't I?

Do I simply change the number that transfers from the W-2 to the CA 540NR form?

Thanks for your help.

[Pacun]

I am not CA expert, but it happens all the time here. In my states, employees never change their witholding to the new state so I end up filing non-resident returns to request money.

States don't use what you type on line 15, 16, 17 but rather use AGI. You go to the state returns and exclude money that should be taxed somewhere else. I don't know how it works on community states but that's the way I do it.

[jainen]

>>Do I simply change the number<<

There is nothing simple about this. You must be ready to defend your position that he was not a California resident, when his wife still lived here and even his employer treated him as a California resident. He can't say he didn't know about the employer, since his paystubs showed it. And he will have a devil of a time proving he has cut all ties to California while maintaining a family home and joint bank accounts and so on. Where is his doctor? Did he register to vote in Colorado, join a new church, change address on ALL his bills and subscriptions, get new drivers license within the required 30 days? Did he never visit his wife after he moved? And by the way, he unquestionably has California-source income under the community property laws unless he had a pre-nup agreement or something, so don't even think about filing MFS.

Don't be cavalier or listen to people who say they've "never had a problem with it." California is very aggressive about people moving out of state. But yes, on Schedule CA (540NR) you would show total federal income in columns A and D and California source income in column E.

[kcjenkins]

I agree, he's going to have CA income, in fact he should have CO tax on it too, but that will be allowed as a credit on the CA return. I'd not waste time on trying to argue it for a part of the year, when his wife was still living there in their home, etc. Just have him get things corrected for 2011, and look at the bright side, you get a better fee this year!!!

[Bees Knees]

I agree, he's going to have CA income, in fact he should have CO tax on it too, but that will be allowed as a credit on the CA return. I'd not waste time on trying to argue it for a part of the year, when his wife was still living there in their home, etc. Just have him get things corrected for 2011, and look at the bright side, you get a better fee this year!!!

I disagree. Just because the wife was still living in CA for part of the year does not make his CO income subject to CA tax. Especially if he can prove he moved from CA to CO in 2009 and established a new home in CO during 2009. When both husband and wife have separate jobs, it is common for each to establish domicile in their new home on separate dates. Non-resident and part-year resident returns make accommodations for that fact.

[jainen]

>>does not make his CO income subject to CA tax<<

His California-source income is his community property share of HER wages. Even though he lives in a non-community property state, that's the way California law works regarding earnings of the resident spouse. It doesn't make a difference on a joint return, but if they file MFS he will be taxed on all of his own earnings plus half of hers, potentially reaching a higher tax bracket, triggering AMT, or taking other hits. That would apply to his federal return as well.

[Bees Knees]

I never said anything about her wages, and nobody said anything about filing separate returns. The issue is his CO wages and whether they are subject to CA tax.

[jainen]

>>I never said anything about her wages<<

Sorry, I misunderstood your response to kc's statement that even as a Colorado resident he still has California source income. In my understanding of the original post, the only California source income involved was the wife's wages; the question is whether any of that is allocated to the out of state husband. The answer under California law is yes.

His Colorado wages are also fully taxable to California if he is still a California resident. That's a different question, whether he is a California resident. Under California (and every state) law, he retains his domicile until it is established elsewhere. But he can be resident of one state while domiciled in another, or he can be a resident of both states at the same time because each state defines residency according to their own separate laws. In my opinion, the information included so far in this thread does not support the conclusion that he is no longer a California resident. If he were my client, I would include a lot more information. In fact, the original post does not even take the position that he is no longer a California resident.

[kcjenkins]

OK, so let's not fight over this, given that none of us know enough details to decide the question, and we have clearly illuminated the issues to be considered by David when he does the returns. He will know the actual facts that will determine the outcome.