State tax return headache

February 11, 2018 6:14 PM

My company headquarters is in New York. I live in California and work in the California office. To which state do I owe taxes, and for which state(s) do I have to file a tax return? It appears the company withheld taxes from my paycheck for New York but not California, which...doesn't seem right.

I'm using TaxHawk, which prompts me to fill out a New York state return in addition to my California return, and then ends up with me still owing $58 despite the $924 that was already withheld. If it turns out this is correct, I can request the credit from California for taxes paid to another state, but it would not surprise me a bit if the company just straight up forgot to take the California office into account when doing tax stuff, which is why I feel the need to ask.

Not sure what other information would be helpful, but happy to provide!

posted by sunset in snow country to Work & Money (6 answers total)

I also live in California and work for a company in New York. They should have been withholding from California. I only paid California taxes this year. Technically, though, if you worked in the New York office part of the year, you're supposed to pay in both states (filing a nonresident return for New York based on the number of days you worked there). I don't know how many people actually do that...
posted by pinochiette at 6:40 PM on February 11, 2018

Agreed — this is probably an error on your company's part. You should check with your HR folks to be sure, since it's possible that there's some arcane system of bookkeeping they use under which all of the wages they pay are classified as "New York source income". If this is the case, then you can probably use the "foreign tax credit" that you mentioned, assuming that New York and California have a tax treaty in place. Usually, though, you would have to be physically present in NY for the income to count as "New York source income" (I think.)

However, if this was an error, then effectively you didn't pay any income taxes to CA—for which you were liable—and did pay income taxes to NY—which you didn't actually owe. In this case, the proper course of action is probably to file a return in both NY, showing $0 taxable income there and requesting a return of the state taxes withheld; and to also file a return in CA, paying the entirety of your tax liability with your return. It's possible that you'll be charged interest and/or penalties from CA as well, since you didn't pay them any income taxes over the year. If you don't have the savings on hand to cover the CA tax bill out of pocket, you might want to request an extension of time to file to give your NY tax return more time to come in.
posted by Johnny Assay at 7:13 PM on February 11, 2018

Best answer: This has come up before. It's not impossible your situation is unusual, but under normal circumstances, you're liable for CA tax, and not liable for NYS tax. If that's the case, your payroll has made a mistake. You should talk to them before doing anything, because maybe there's a simpler solution than this, but I believe you can fix part of the problem by filing returns for both states. You should get a big refund from NYS, which you can use to pay your CA tax bill.

But even if you're happy to file the two state returns, you should still talk to payroll. They should have deducted CA paid family leave, unemployment and disability insurance. The fact you didn't pay this isn't going to get fixed by filing two returns, and you want those benefits.
posted by caek at 8:23 PM on February 11, 2018 [2 favorites]

I had this happen, too. Lived in MA, worked for a company in NY that had bought the MA company I was working for. The NY co. withheld NYS taxes, and it was a minor headache getting them to straighten it out. It was worth it, because I was liable for the MA taxes, and because the NY taxes were considerably more.
posted by Kirth Gerson at 5:27 AM on February 12, 2018

If you're getting all that NY tax back, which is then used to pay CA, then you didn't actually pay any NY taxes and can't deduct that. You probably need the help of a real-person tax preparer, not software, unfortunately, then get your employer straightened out for next year.

Note that an employer isn't always required to withhold taxes for other states; for example, the company I work for doesn't withhold taxes for the state I live in, so I have to put aside my taxes on my own each month.
posted by AzraelBrown at 7:03 AM on February 12, 2018

Response by poster: Sounds like there's a consensus. Thanks, all! (caek's answer marked as best because I'm actually being laid off, so unemployment is extremely relevant here. Sigh. So done with these jerks.)
posted by sunset in snow country at 7:46 AM on February 12, 2018