Question

Donald is an Oregon resident, but commutes daily to work in California. His only income was $45,000 in wages from his job in California. He is not sure if he needs to file a return for both states. When he prepared returns to check out his potential tax liability, he estimated he could owe $2,600 tax to California and $2,100 tax to Oregon. Which of the following is correct?

1. He will take credit on his California non-resident return for the tax he pays to Oregon

2. He will take credit on his Oregon return for the tax he pays to California

3. He cannot take credit on either State because there is no reciprocal agreement between Oregon and California

4. He does not need to file a California return because he is an Oregon resident

Answer 1

He will take credit on his California non-resident return for the tax he pays to Oregon. (which is Option A)

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Explanation:

As per applicable rules, a non-resident working in California is required to file income tax return in California if his/her total income from all sources (in California) is $17,029/$34,060 or more for single/married taxpayers (filing joint return). Further, the residents of following states are allowed to claim other state tax credit (for taxes) paid by them on the income earned in California (as per California Schedule S):

1) Arizona (AZ),

2) Guam (GU),

3) Indiana (IN),

4) Oregon (OR)

5) Virginia (VA)

In the given case, Donald is an Oregon resident and earns all of his income from sources in California. As his total income exceeds the prescribed limit, he will be required to file non-resident income tax return in the state of California. However, he will be able to claim other state tax credit paid by him as he is a resident of the state covered by California Schedule S.