US tax question - telecommuiting

January 16, 2005 6:44 PM

Taxfilter: telecommuting across state lines. [mi]

We moved from Montana to California last March, my wife continued to work a couple hours a day for her Montana employer (she's a grant writer). Since we lived in both states last year I know we will have to file in both states, but where does my wife have to pay on wages earned from Montana, but living in CA? I though that the bookkeeper at her employer had looked into it, but just learned that they have just been taking out MT taxes with no change. We've always done our own taxes, do we need professional help?

posted by 445supermag to Law & Government (2 answers total)

445, you'll have to check whether Montana and California have what is called a reciprocity agreement. (Just call CA's Department of Revenue; they can surely tell you.) If so, you're in luck, as you'll only have to pay taxes in one state, or perhaps pay them pro-rated. In any case, there will be forms you can file in both states to clarify the situation; you'll probably be able to get most of the MT taxes back, for instance, while having to pay most of that refund to CA.

If the states do not have reciprocity, which is quite possible since CA and MT are not adjoining, you may be out of luck -- it's entirely possible you can get double-dipped and pay on that income both states' income taxes. Ideally MT will allow your wife to file as a non-resident or part-year resident (these may be special forms) and only pay the pro-rated tax; ideally one or the other state will allow you to deduct the entire amount of tax paid in another state, regardless. But this is neither standardized nor guaranteed, just usual.

Do your taxes in this order: federal, Montana state, California state. Do them early, too, in case there are any hitches (you don't want to have to come up with a tax payment on April 15).
posted by dhartung at 10:46 PM on January 16, 2005

I lived in Vermont and did consulting work for a company that was based in California. There was definitely no reciprocal arrangement and the company that I worked for took out state taxes for Vermont and California, which annoyed the crap out of me [and I asked a question about it]. I filed taxes and paid taxes in Vermont, and let California keep their $11. There are a few more suggestions for my similar, but not quite the same, issue in that thread.
posted by jessamyn at 10:35 AM on January 17, 2005