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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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If I live in Michigan and do consulting in California a couple

Customer Question

If I live in Michigan and do consulting in California a couple days a week, will I have to pay state taxes to both states?
Submitted: 6 years ago.
Category: Tax
Expert:  Merlo replied 6 years ago.

Hello JA Customer,


You must pay state taxes to any state where you physically work and have earned income and also to your resident state.


The way it works, however, is that you will file a return with CA at the end of the year as a non resident and pay taxes only on the income you earned in that state. All of your income, including CA income, will then be reported on your MI state resident return, but MI will then allow you a credit for taxes already paid to CA , thereby eliminating any double taxation at the state level on that same income you earned in CA.



Thank you JA Customer



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Customer: replied 6 years ago.
I will certainly pay fo rthis, very clear answer! Follow up though, California's taxes are much higher, does this differance in tax rate play in to this at all?
Expert:  Merlo replied 6 years ago.

Hello again JA Customer,


Each state figures this credit a little differently, but here is how it would work in the state of MI:


EXAMPLE: Computing MI resident's credit for tax imposed by another state.

Tom is a Michigan resident and has Michigan wages of $22,000 and $8,000 of

wages earned in another state. Tom's federal AGI is $32,000. He has no Michigan

adjustments (additions or subtractions) to AGI. After subtracting his $3,600

exemption from $32,000 income subject to tax, Tom's taxable income is $28,400

(MI-1040, line 16). The other state imposed $600 tax on the $8,000 Tom earned in

that state. To compute the credit, determine the following:

Tom's Michigan income tax: $28,400 x 4.35% (MI-1040, line 17).......................$1,235

Percentage of non-Michigan income to total income subject to tax ($8,000/$32,000)...25%

Michigan tax x 25%.................................................................................................. $309

Tax imposed by the other state (enter on Schedule 2, line 5a).................................$600

Credit allowed is $309, the lesser of $309 and $600 (enter on Schedule 2, line 5b).


The botXXXXX XXXXXne here is that you will end up paying the higher CA rate on the income you earned in that state, as MI will not allow you to claim the full tax rate that was paid to CA. They will only allow you to prorate the credit due based on MI state rates.



Thank you JA Customer



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