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Wendy Reed
Wendy Reed, Enrolled Agent
Category: Tax
Satisfied Customers: 3345
Experience:  15+ years tax preparation and tax advice.
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Im considering accepting a job offer to work in Washington,

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I'm considering accepting a job offer to work in Washington, DC, as a Federal employee. If I take the offer, I will maintain my CA home, since the appointment will be for 3 to 4 years, max. The plan is, I will spend one week a month (9 days, including weekends) in CA, the rest of the time in DC, while my wife will do the inverse (one week in DC). I'm trying to sort through the most tax-efficient way to approach the situation--I can live in MD, VA, or DC, although I will likely be traveling extensively--I think the threshold for residence is six months, and I may well be able to document that I'm residing neither in CA nor in any other jurisdiction for that amount of time.

Insights?
Submitted: 4 years ago.
Category: Tax
Expert:  Wendy Reed replied 4 years ago.

Thank you for giving me the opportunity to assist you. I will give the best answer that I can with the information provided.

 

Hello there,

Under CA residency guidelines, there are many factors to consider when determining if an individual is or is not a CA resident. However, there is a "safe harbor" rule, even when the spouse remains a CA resident:

 

"The safe harbor provides that an individual domiciled in California who is outside California under an employment-related contract for an uninterrupted period of at least 546 consecutive days will be considered a nonresident unless any of the following is met: The individual has intangible income exceeding $200,000 in any taxable year during which the employment related contract is in effect The principal purpose of the absence from California is to avoid personal income tax .

 

Return visits to California that do not exceed a total of 45 days during any taxable year covered by the employment contract are considered temporary"

__________________________________________

 

It appears that your plans to work and live in the east and to only visit CA for 9 days per year would allow you to claim safe harbor status. Of course the year that you move out of and move back into CA you would be considered a part year resident.

 

Your spouse will still be a full year CA resident, so you will need to follow specific rules for reporting income to the federal gov and CA (also depending upon whether you file jointly or separately) since CA is a community property state.

 

The following publication covers all of this information regarding CA rules:

http://www.ftb.ca.gov/forms/2009/09_1031.pdf

 

Regarding the new state of residence, that is a bit more complicated, since you may possibly live in one state and work in another. However, DC has a withholding exemption form, because MD and VA have "reciprocal agreements" with DC. This means that you are only taxed on income received in DC by your state of residence, so you can avoid filing two separate tax returns for DC and your home state.

 

DC's tax rate is up to 8.5% for over 40K taxable income, so avoid living there if you can.

MD tax rates vary from 2% to 6.25% and VA varies from 2% to 5.75%. MD and VA have similar tax structures so you may want to consider living in the state or city that has the lowest housing cost.

 

Here is a link to state tax rates:

http://www.taxfoundation.org/taxdata/show/228.html

 

Please let me know if you need more information.

 

 

Customer: replied 4 years ago.
It's 9 days per month (roughly) in CA not per year. Thus it will be 108 days total in CY2011, so we won't fall under safe harbor.

Expert:  Wendy Reed replied 4 years ago.

I apologize for misreading your original post. That would mean that you do not fall under the safe harbor, and you would continue to file your returns as a CA resident while working in DC. However, you can still use a DC withholding exemption form as you will be a resident of another state---if you do not spend more than 183 days domiciled in DC:

http://otr.cfo.dc.gov/otr/frames.asp?doc=/otr/lib/otr/2010_rpa_forms/2009_d-4a.pdf

 

If you do reside in DC while working there, you will need to pay DC tax, and then on your CA tax return, you will use the Other State tax credit form (Schedule S) to avoid double taxation.

 

MD (http://www.marylandtaxes.com/publications/bulletins/it/ar_it37.pdf)

 

and

 

VA (http://www.tax.virginia.gov/site.cfm?alias=residencystatus)

 

have similar 183 day rules for residency, although MD defines domicile as place of permanent residence, but VA recognizes "actual" residence where only physical presence counts.

 

In any event, for DC work purposes, it is up to the employer to determine your residency for purposes of withholding. If you maintain a temporary residence in MD or VA and pay taxes to either state because that state defines you as a resident, then again you can use Schedule S on your CA tax return to avoid double taxation.

 

 

Wendy Reed, Enrolled Agent
Category: Tax
Satisfied Customers: 3345
Experience: 15+ years tax preparation and tax advice.
Wendy Reed and 3 other Tax Specialists are ready to help you

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