State taxation of technology workers has become more complex with the advent of remote working. One common misconception is that any income earned by working for a California-based company is California-source income. California's regulations are stricter in terms of where the employee's services are actually rendered and not just the employer's headquarters.

Where Does It Work?

Generally, compensation for the services of an employee is considered to be from the place where such services are actually rendered in California. Generally, wages are not California-source wages under these circumstances because the tech employee is based in Nevada, Texas, or Washington, and provides all services to them from that location.

But if it is a regular trip back down to the California region for work, this can alter the calculation. California states that a nonresident who renders services in California has California-source compensation for the days on which the services are rendered. An example of one FTB is to divide the California days by total days worked. Hire an expert (like the best tax attorneys) who can help you with tax services.

What Happens if the “Convenience” Rule is Breached?

Other states have a “convenience of the employer” rule which will tax some of an employee's remote-work wages even if they work in a different state. The notion shouldn't be extended to California.

In California, the location at which the employee actually works is usually key to sourcing wages. Just because the paycheck is coming from the employer's headquarters doesn't make the entire amount California-source income.

Residence is a different matter. A person who moves temporarily to Nevada or Texas, but maintains a home in California, may be considered a California resident and liable to be taxed on worldwide income.

Payroll Needs to Match Reality

The payroll department at a California entity should not presume that all remote workers in a different state should be subject to withholding income tax in California.

If the employee is working remotely from out of state, employers should keep records documenting the employee's place of work and ensure they are meeting the payroll needs of the state in which the employee is working. Also, look at your W-2 and state withholding.

Wage Withholding is managed by the Employment Development Department (EDD), and FTB reports individual income taxes. Get an experienced tax expert (like a lawyer for IRS debt) and enjoy the valuable help he can offer.

Avoiding Double Taxation

An employee who works remotely and physically provides services in more than one state could be subject to filing in more than one state. In certain circumstances, California will also allow for an Other State Tax Credit, depending on the circumstances and proper documentation, for the same income being taxable by California as well as another state.

Keep detailed records of:

• The location in which you performed your labor on a day-to-day basis.
• California vs. out-of-state work days.
• Documents assigning you to a lease or housing record showing where you live.
• Employer-approved remote-work arrangements.
• Travel dates and business trips.
• Records of W-2s and State withholding.
• State tax return and proof of tax payments.

Here are Some Tips for Remote Tech Employees:

Discuss the following with the player before leaving California for another state:

• Starting a new residence and providing the proper paperwork.
• Ensuring that the HR and payroll information is updated with your employer.
• Determining whose jurisdiction wage withholding belongs to.
• Keeping a post-migration log of all California workdays.
• It may be necessary to treat equity compensation separately, since stock-based compensation may be subject to special sourcing rules.
• When dealing with multiple states, it is best to consult a tax professional.

Not all remote workers' pay is considered "California-source income" for those who do not have a California headquarters. Questions that are important are: Where was the service rendered, and has the employee continued to live in California? However, a well-set-up payroll system, correct work-location documentation, and diligent state filing practices can minimize over-withholding and avoid double taxes.