FTB Publication 1100: Nonresident & Part-Year Tax Rules
An overview of California's approach to taxing individuals with complex residency. Understand how your connection to the state impacts your filing obligations.
An overview of California's approach to taxing individuals with complex residency. Understand how your connection to the state impacts your filing obligations.
The California Franchise Tax Board (FTB) provides guidance for non-full-year residents in FTB Publication 1100. This publication explains the tax rules for individuals who live outside California but earn income within the state, as well as for those who move into or out of California during a tax year.
A person’s residency status determines how California applies its tax laws. The FTB defines three categories: resident, nonresident, and part-year resident. A resident is anyone in the state for other than a temporary purpose, while a part-year resident moves into or out of California during the tax year.
An individual’s domicile is their permanent home, and a person can only have one. Residency refers to where a person currently lives. It is possible to be domiciled in another state but still be considered a California resident for tax purposes if your presence in the state is for more than a temporary reason.
California law presumes an individual is a resident if they spend more than nine months of the year in the state, though this can be rebutted with evidence. A “safe harbor” rule allows certain individuals domiciled in California to be treated as nonresidents. This applies if they are outside California for at least 546 consecutive days for work and are present in the state for 45 days or less during the tax year.
If residency is unclear, the FTB uses the “Closest Connections Test” by examining factors to see where an individual has the strongest ties. No single factor is decisive. Considerations include:
For nonresidents, California only taxes income derived from sources within the state. Identifying what qualifies as California-source income is a necessary step for an accurate tax filing.
Income from services like wages is sourced to where the work is physically performed, often allocated based on the ratio of workdays in California to total workdays. Income from a trade or business conducted in California is sourced to the state. For businesses operating in multiple states, income is apportioned based on the share of sales in California.
Income from real and tangible personal property, such as rental income or capital gains from a sale, is sourced to the property’s location. For instance, rental income from a San Diego property is California-source income, regardless of the owner’s residence. This applies even if payments are received after the seller has moved from the state.
Sourcing income from stock options depends on where the services were performed, allocated based on workdays in California between the grant and vesting dates. In contrast, pension and retirement income is sourced to an individual’s state of residence when the payments are received.
California uses a specific method on Form 540NR to calculate tax for nonresidents and part-year residents. This method applies a tax rate based on total worldwide income to the portion of income earned in California. This prevents a high-income person from paying tax at a lower marginal rate just because a small part of their income is from California.
The first step is to determine your total taxable income from all sources as if you were a full-year California resident. This is calculated on Schedule CA (540NR) and includes all income from every state and country for the entire year. This figure establishes the baseline income level for finding the appropriate tax rate from California’s tax tables.
Next, determine your California taxable income. This includes all income from all sources while you were a resident, plus income from California sources while you were a nonresident. After subtracting applicable California deductions, you arrive at the income amount subject to state tax.
The final step is to find your tax liability. First, calculate the tax on your total worldwide income using California’s rates. Then, create a ratio by dividing your California taxable income by your total taxable income. Your final tax is the tax on your total income multiplied by this ratio. For example, if the tax on $150,000 of total income is $10,000 and your California taxable income is $50,000, the ratio is 33.3%. Your California tax would be $3,333 ($10,000 x 0.333).
Tax credits are available to nonresidents and part-year residents to prevent double taxation. When income is taxed by both California and another state, these credits can provide relief. The rules for applying credits depend on residency status and the states involved.
The Other State Tax Credit (OSTC) is a common credit. If a part-year resident moves out of California and is taxed by their new state on income also taxed by California, the OSTC provides relief. California allows a credit for taxes paid to the other state on that same income.
For nonresidents, the ability to claim the OSTC is restricted. California does not permit nonresidents to claim a credit for taxes paid to their home state, with an exception for residents of Arizona, Guam, Oregon, and Virginia.
Other California tax credits, like the Child and Dependent Care Expenses Credit, may also be available. These credits are prorated, with the amount limited by the ratio of California adjusted gross income to total adjusted gross income. This ensures the benefit is proportional to the taxpayer’s economic activity in the state.
The FTB has specific tax rules for groups like military personnel, students, and those on temporary work assignments. These guidelines clarify how their income is treated for California tax purposes.
Under the Military Spouses Residency Relief Act, a servicemember’s legal residence for tax purposes does not change just because they are stationed in California. Their military pay is not California-source income. Income earned by their non-military spouse may also be exempt if the spouse is in California only to be with the servicemember and shares the same domicile.
Students in California for college who remain domiciliaries of another state are considered nonresidents. Their presence is for a temporary educational purpose. As nonresidents, they are only taxed on income earned from California sources, like a part-time job.
Individuals in California for a temporary work assignment can be treated as nonresidents if their stay is for a limited period and they keep their domicile elsewhere. The income earned for services performed in California during the assignment is taxable by the state.