California Remote Worker Part Year Tax Guide

Remote work gives you location flexibility, but your state taxes still follow clear rules.

If you moved into or out of California mid year, you likely count as a part year resident and you will need to allocate income between your resident and nonresident periods. This guide explains California remote worker residency rules, California part year resident tax planning, how to allocate wages and equity income, how to prevent double taxation, and how to meet safe harbor estimated tax rules. As a CPA firm, Alviso, CPA uses this approach with clients and provides a practical documentation checklist that helps during filing and in the event of an inquiry.

Who is a California resident

California treats you as a resident if you are in the state for other than a temporary or transitory purpose, or if you are domiciled in California and your absence is only temporary. Domicile means the place you intend to be your true and fixed home. You can live in multiple places during the year, but you only have one domicile at a time. The tax impact is significant because residents are taxed on worldwide income while nonresidents are taxed only on California source income. See the Franchise Tax Board overview and residency glossary for plain language definitions and factors considered during a residency review at FTB part year and nonresident overview and the residency glossary pages on ftb.ca.gov.

FTB often points taxpayers to Guidelines for Determining Resident Status, also called Publication 1031. It discusses domicile, temporary or transitory purpose, and the evidence that carries weight. Common factors include where you own or rent a home, where your spouse or partner and dependents live, where your mail goes, where your vehicles are registered, where you are registered to vote, your time spent in and out of California, and where you hold professional or driver licenses. There is no single factor that controls. The pattern of your life and your documented intent carry the most weight. You can review FTB guidance referenced through the nonresident and residency change publication listing at FTB Pub. 1100 and residency resources.

Part year versus nonresident taxation

A part year resident is taxed on all income from all sources while a resident, and only on California source income while a nonresident. A full nonresident is taxed only on California source income. Mid year movers file FTB 540NR with Schedule CA for 540NR to report federal amounts and compute California taxable income with the resident versus nonresident allocation. The official instructions show how to use columns A through E and how to complete the Part Year Resident Worksheet, including special sourcing rules for equity pay, K 1 items, and capital gains. See the current instructions at FTB Schedule CA 540NR instructions.

Wages and telecommuting

Compensation for services is generally sourced to the state where the services are physically performed. That simple rule drives most wage allocation for remote workers. If you performed work while physically in California, those wages are California source. If you worked from another state after your move, those wages are generally not California source. The pay date alone does not control. What matters is where you performed the services. This service performed sourcing approach is reflected in FTB Publication 1100 and examples throughout the residency materials. You can review the examples at FTB Publication 1100.

Practical point for payroll. Employers often continue California withholding even after a move. If you moved out, ask payroll to update your work state and state withholding profile so that wage withholding lines up with your new location. If you moved into California and started performing services in the state, adjust withholding to avoid a large balance due.

Equity pay and deferred compensation

Equity compensation requires extra care because the taxable event and the sourcing period may not match the date cash hits your account. California points holders to Publication 1100 for examples that explain typical patterns for nonqualified stock options, incentive stock options, restricted stock and RSUs, and other deferrals. In general, equity compensation is often allocated to the states where services were performed during the vesting or earning period that produced the income. If part of the required services were performed in California, a portion can be California source even if you live somewhere else on the payout date.

Common patterns include the following. Nonqualified options can be sourced over the grant to vest, or grant to exercise window, depending on the facts. RSUs generally source over the service period leading to the vest. Dispositions can trigger additional reporting on your federal return. Use your grant, vest, and exercise records along with a workday calendar to apportion the income to California and to other states as needed. Publication 1100 provides examples and special rules. Find the reference at FTB Publication 1100.

Capital gains and installment sales

California taxes gains from real property located in California as California source, regardless of your state of residence on the sale date. By contrast, gains from most intangible property such as stocks are usually sourced to your state of residence on the sale date. That means a mid year move can shift the state that taxes a stock sale. There are exceptions, for example when an intangible has a business situs in California. Publication 1100 gives examples you can apply.

Installment sales require extra care. Gains are reported as payments arrive. For California, the sourcing depends on the underlying property and your residence or physical location during the period that produced the income. Real property located in California remains California source. For intangible property, the residence at the time of sale is usually what counts. Review the detailed examples in Publication 1100 at FTB Publication 1100.

How to allocate income on 540NR

California asks part year filers to start by computing total income as if a full year resident, then to allocate California taxable amounts using Schedule CA for 540NR. The instructions explain the column logic and the Part Year Resident Worksheet. Here is the high level approach that keeps returns clean and reduces questions later.

First, build a clear timeline of your move. Document the day you changed domicile, your first day physically living in the new state, and your last day in California. Second, gather documents that prove wages and income by date. This includes pay stubs, W 2s, brokerage confirmations, option grant and vest records, and K 1 schedules with date details when available. Third, use the Part Year Resident Worksheet to split items between resident and nonresident periods, and use the Schedule CA columns to show federal totals, California adjustments, California amounts, and the final California taxable figure.

For pass through income from partnerships and S corporations, California allows daily pro rata allocation if date specific information is not available. If a K 1 shows a full year amount but you only lived in California for part of the year, compute a daily split that aligns with your residency period or use specific dates when the items were realized. This approach is referenced in the Schedule CA instructions at FTB Schedule CA 540NR instructions.

Worked example for a mid year move

Assume a remote employee moved from California to Texas on July first. Wages through June were earned while physically in California. Wages from July through December were earned while living and working in Texas. An RSU vested on October first that relates to a service period running from April first to September thirtieth, with roughly half of that period in California and half outside. A stock sale of long held public shares occurred on November first.

Here is how those items would be evaluated on the California return.

• Wages through June are California source. Wages after the move are generally not California source if services were performed outside the state.

• The RSU is sourced to the states where services were performed during the April through September service period. If half the workdays were in California and half were in Texas, only half the RSU income is California source.

• The stock sale of public shares is an intangible asset gain. For most taxpayers the gain is sourced to the state of residence on the sale date. If the taxpayer was a Texas resident on November first, California would not tax that sale.

On Schedule CA for 540NR, the federal amounts for wages and stock income appear in column A. Column B and C show any California additions or subtractions. Column D shows the California amounts after allocation. The Part Year Resident Worksheet supports the split for each line. Keep all supporting schedules with your records.

Avoiding double tax with Other State Tax Credit

When income is taxed by both California and another state, California residents can often claim a credit for taxes paid to the other state. This is handled using Schedule S also called the Other State Tax Credit. The credit is typically limited to the smaller of the tax actually paid to the other state on that income or the California tax on that same income. The instructions explain which returns must be attached and the documentation required, including a copy of the other state return and any W 2s or 1099s that show withholding. Review the official guidance at FTB Schedule S instructions.

Part year residents can use the credit for items taxed by both states during the period of California residency. Nonresidents generally cannot claim the credit on a nonresident return. This is why correct allocation and documentation of dates, work locations, and sourcing is so important. Keep in mind that some states allow a reciprocal credit, while others do not. If the other state has a different sourcing rule for wages or equity pay, you can still reduce or eliminate double tax with a properly prepared Schedule S on your California return as a resident during the same period.

Estimated tax safe harbor rules

Mid year movers often face a mismatch between withholding and final tax. California has safe harbor tests that can help you avoid underpayment penalties even when your income fluctuates during the year. The general safe harbor is to pay at least ninety percent of the current year California tax or one hundred percent of the prior year California tax. If your prior year California adjusted gross income was more than one hundred fifty thousand, the prior year test is one hundred ten percent. If your prior year California adjusted gross income was one million or more, the prior year test is not available and you must meet the current year standard. Review the current rules and payment schedule at FTB 540 ES instructions.

Calendar timing can help. California permits the annualized income method using FTB 5805 when income is lumpy or concentrated in certain months. This method recalculates required installments based on the portion of income earned through each installment period. It is often helpful for taxpayers who move mid year and have higher income either before or after the move. If you received a large RSU vest or sold a business later in the year after moving into or out of California, the annualized method can reduce or remove a penalty as long as the calculations are correct and filed with the return.

Payment logistics are straightforward. You can use Web Pay on ftb.ca.gov, mail vouchers, or pay through your tax account. Mandatory e pay rules can apply above certain thresholds. The state provides a payment overview at FTB estimated tax payments. For employees, updating state withholding through your employer may be a better fit than quarterly vouchers. Submit an updated DE 4 for California withholding, and check whether your employer can split wages by work location if you are truly working in another state.

Mid year planning tips for remote workers

Tie your tax planning to your move dates and your work locations. Before or immediately after the move, update payroll records, mailing address, bank and brokerage accounts, vehicle registration, driver license, and voter registration. These items not only reduce filing friction later but also support your residency position if the FTB asks questions.

Review equity grants and planned sales. If you can control the timing of an RSU vest or a stock sale, consider how the sale date or vest date interacts with your residency status. Be careful with incentives and blackout periods. Do not let the tax tail wag the dog, but understand the state tax result so you can make informed decisions.

Run a midyear projection. A short projection that includes both wage sourcing and any scheduled equity events helps you pick the right safe harbor approach. Decide whether you will rely on prior year totals, current year ninety percent, or annualization. If you expect a balance due, schedule Web Pay for the next installment and consider boosting withholding for the remainder of the year.

CPA documentation checklist

Good documentation answers most residency and sourcing questions before they become issues. Alviso, CPA requests the following from clients who move mid year. Use this as a practical list to gather what you need.

• Move timeline with the date you left California, date you arrived in the new state, and any short returns to California.

• Signed lease start and end pages, purchase or sale closing statements for homes, and homeowner exemption filings.

• Driver license and vehicle registration change confirmations and dates, voter registration confirmations, and any professional license updates.

• USPS address change confirmations and date of mail forwarding.

• Employment records including offer letters, transfer or remote work approvals, payroll system screenshots that show work location, and W 2s and pay stubs for relevant pay periods.

• Utility bills in your name with service start and stop dates.

• Bank, credit card, and investment statements that show mailing address changes and dates.

• Travel logs that show days in California versus other states, including flight receipts, hotel folios, toll tags, and calendar entries.

• School enrollment records for dependents and first appointment dates with new medical providers if relevant.

• Lease or rental agreements for temporary housing, or proof that a place of abode was maintained in either state.

• Equity compensation documents such as grant notices, vesting schedules, exercise confirmations, and plan documents.

• Copies of prior year state returns and any letters from state tax authorities.

• Estimated tax payment confirmations and employer withholding change requests.

• Any correspondence with FTB, plus a short CPA memo that summarizes facts and dates.

These records align with the factors FTB outlines in its residency resources and Publication 1100, and they make your return preparation faster and cleaner.

Three step workflow for part year moves

Alviso, CPA uses a simple workflow to keep filing accurate for mid year relocations. First, establish the timeline. Confirm the date you changed domicile and the dates of physical presence in each state. Second, compute total income as if a full year California resident, then allocate using the Part Year Resident Worksheet and Schedule CA for 540NR. When K 1 items or equity compensation lack date detail, we use a daily pro rata method backed by documentation. Third, prevent double tax and map payments. If the same income is taxed by two states, prepare Schedule S and attach the other state return. Adjust payroll withholding or schedule estimated payments to hit California safe harbor tests.

Common mistakes to avoid

Relying only on pay dates to allocate wages often creates errors. The correct rule for wage sourcing is where the service was performed. Apply the FTB examples for equity pay as well. Missing proof of domicile change is another frequent issue. Make sure your driver license, vehicle registration, voter registration, and mailing address changes are documented with dates. Finally, do not skip the Schedule CA instructions. Many avoidable notices arise from placing amounts in the wrong columns or failing to attach documentation when claiming the other state tax credit. Review the official guidance at FTB Schedule CA 540NR instructions and FTB Schedule S instructions.

FAQ for mid year movers

I moved on July one. Which state taxes my stock sale on October one?

For most investors, a sale of marketable securities is an intangible gain sourced to your state of residence on the sale date. If you were a nonresident of California on October one, California typically does not tax the gain. Special rules can apply if the intangible has a business situs in California. Review Publication 1100 for examples at FTB Publication 1100.

Do I file California and my new home state in the same year?

Most mid year movers file a California 540NR for the year of the move and a resident return in the new home state if that state has an income tax. The California return reports all income while you were a resident and California source income while you were a nonresident. If the other state also taxes the same income, you may claim the other state tax credit on California Schedule S if you were a California resident for the period in question.

My employer continued California withholding after I moved. How do I fix that?

Ask payroll to update your work location and adjust state withholding going forward. If you had California withholding on wages that are not California source, you can claim a refund on your California return. That said, review where you were physically working during those pay periods. If you were in California, the withholding may be correct. Compare to the service performed rule discussed above.

How are RSUs taxed if I moved mid year?

RSU income is generally allocated to states where you performed services during the vesting period that produced the income. If half of the vesting period workdays were in California, half the RSU income is often California source. Use grant notices, vesting schedules, and a workday calendar to support the allocation. Publication 1100 provides examples at FTB Publication 1100.

How are nonqualified stock options handled after a move?

Nonqualified stock option income is often allocated to the states where services were performed during the period that generated the option benefit. Depending on the facts, that period can run from grant to vest or grant to exercise. Workday allocation is commonly used. Review your plan documents and keep records of grant, vest, and exercise dates. Publication 1100 has detailed examples.

What about a sale of my California rental property after I move?

Real property located in California is always California source. A sale of a California rental is taxable by California even if you are a nonresident on the sale date. The same applies to rental income while you are a nonresident.