Pay income tax in 3 states on the same earnings?

[Joan.of.the.Arch]

My college son was telling me of an unfortunate situation which he is lucky to avoid. He lives in a state with an income tax (Missouri). In the summer he will have a job at a research institution that has campuses in Washington state (no income tax) and Louisiana (income tax). The pay will come from California (income tax) who is actually the employer.

So son will pay income tax to both CA and MO. He says that if he were going to the Louisiana facility, he would have to pay tax to CA, MO, and LA.

Nasty tax build-up. Isn't there a spray for that or something?

Have you heard of situations like that? Tax on the same income to three different states?

[watsoninc]

I am definitely not great at taxes but have been in as similar situation (had to pay taxes in 3 different states). Due to the complexity, I did hire an accountant (rather than doing Turbo Tax). She said I was only liable to pay state taxes on the income that I earned in that state. That's all I ultimately paid.

I did receive inquiry from two of the three state revenue departments, but with clarification they left me alone.

[noppenbd]

Originally Posted by Joan.of.the.Arch

My college son was telling me of an unfortunate situation which he is lucky to avoid. He lives in a state with an income tax (Missouri). In the summer he will have a job at a research institution that has campuses in Washington state (no income tax) and Louisiana (income tax). The pay will come from California (income tax) who is actually the employer.

So son will pay income tax to both CA and MO. He says that if he were going to the Louisiana facility, he would have to pay tax to CA, MO, and LA.

Nasty tax build-up. Isn't there a spray for that or something?

Have you heard of situations like that? Tax on the same income to three different states?

That doesn't sound right to me. I would have an accountant check on that. The pay should only be taxed in one state at a time.

Edited to add:
I found this online which seems to suggest that as a California nonresident, he should not have to have CA taxes withheld since the wages are not earned in California:
http://www.edd.ca.gov/pdf_pub_ctr/de231d.pdf
(see the example on page 2 below "Wages Paid to Nonresidents of California")

[disneysteve]

In what state will he actually be working? It doesn't matter where the employer is based. It matters where he lives and where he works. For example, when I lived in PA and worked in NJ, I had to file state returns in each of those states. At the same time, my wife also worked in NJ for an employer based in Michigan. She also had to report to PA and NJ but didn't have to do anything with Michigan since she neither lived nor worked there.

Also, he won't actually have to pay taxes to 2 states. He should get a credit in one for taxes paid to the other. In our case, we had to pay NJ since that was where the income was earned.

[Joan.of.the.Arch]

He will work in Washington. He lives in Missouri.

I guess we/he need(s) to look more closely into this. He did not mention paying tax on the earnings in two states having been an issue in 2009 when he worked in Michigan but lived in Missouri. So I presumed it did not happen then (credit as disneysteve mentions?).

[disneysteve]

Originally Posted by Joan.of.the.Arch

He will work in Washington. He lives in Missouri.

That's a heck of a commute.

Seriously, he will obviously be residing in Washington while working there, though his permanent residence will remain in Missouri. I'm no tax expert, but I would think he would have Washington taxes witheld. At tax time, he will file his Missouri state return which will show that he owes income tax on that money but there should be a line to deduct taxes paid to Washington leaving little to no tax liability to Missouri.

California wil have nothing at all to do with this.

[red92s]

I could be entirely wrong here, but this is my understanding . . .

This is a different situation from living in one state and commuting to another for work on a daily basis, in which case you tax liability can be no higher than the highest of the two states.

If I live in a state with 4% and work in a state with 5%, I'll pay 5% in the state where I work. If I live in a state with 5% and work in a state with 4%, I'll pay 4% to where I live and 1% to where I work. The total liability cannot exceed the higher amount of the two states.

While doing his research gig, he would be living and working in WA, with 0% income tax. Just because he is still a resident of MO does not entitle them to a cut . . . unless he was commuting back and forth.

[Joan.of.the.Arch]

Well I have (quite easily, I must say) just found the form to file with MO to claim credit for at least part of taxes paid to another state. I won't fuss with it any more until I can talk to son to make sure he is aware of that. I'm sure he did say that CA wants him to file.

[Seeker]

It depends on how the company earns income from your son's services.

Generally the above is correct, if your son does nothing for California (he's never in California performing some service), then he has no income here per se and no reason to file here.

Read the California Franchise Tax Board's Publication 1017 (or the first part of it)

http://www.ftb.ca.gov/forms/2009/09_1017.pdf

If your son has signed something allowing this comapny to withhold for California Income, then he can probably get a wavier. The first few pages go into the details of what is needed or excluded. And it depends entirely on how this company is setup and organized and whether or not your son will be perfoming any services here... physically.

Also Joan, he would never be taxed on the same income by all three or two states. There will be proportions based on the documentation. And your son would be receiving separate forms as to how much withholding has been paid in each state... and would need to follow up with the tax forms in each of those states.

But it's a percentage of the whole, not taxed multiple times from each state on the whole amount.