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A friend of mine resides in CA full time but has two jobs and received a W-2 from California and one from Utah (he never lived in or had residency in Utah). His W-2 from each state was around $70,000.

He had two questions:

1) Does he have to file in both states? How does he make sure he doesn't get taxed by CA on the income he already paid to Utah?

2) His combined income is over $106,800 (the limit for Social Security/Medicare), however each state withheld the full amount so he has paid SS/Medicare on $140,000 of income. Would he just get a larger federal refund of the amount he shouldn't have paid?

Thanks for any help.

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The social security taxes are withheld not by the state but by the company. Each company you work for is required to withhold up the maximum amount. They have no knowledge about any other jobs you have. The excess funds will be returned as part of the tax return (the tax software packages pick this up very easily). There in no maximum amount for Medicare, the tax is withheld by each company for every dollar you earn. –  mhoran_psprep Feb 17 '13 at 18:32
    
Was the work site for one of the jobs in Utah? –  mhoran_psprep Feb 17 '13 at 18:33
    
I believe he telecommuted from California. –  Scott Feb 17 '13 at 18:53
    
It will depend on how he filled out his Federal and State W-4 tax forms, and what is the reciprocity between the two states. His pay stubs while working for the Utah company should have been telling him the tax money was going to Utah. –  mhoran_psprep Feb 17 '13 at 19:17
    
"How does he make sure he doesn't get taxed by CA on the income he already paid to Utah?" He will be taxed by California on his Utah income because California taxes its residents on all their worldwide income. –  user102008 Feb 17 '13 at 22:40

2 Answers 2

up vote 3 down vote accepted

Yes,it would be necessary to file tax returns in both states.

First, complete the Federal tax return. If your friend itemizes deductions, the income taxes withheld (and thus paid) to both States during 2012 are deductible on Schedule A of your Federal Form 1040 for 2012 (as well as taxes paid in 2012 for previous years, e.g. accompanying the 2011 tax return filed during 2012). On page 2 of Form 1040, your friend will get the excess contributions for Social Security tax as a credit (meaning it will reduce the Federal income tax owed or increase the Federal tax return). The States of California and Utah have nothing to do with this matter, even if the excess withholding was done by the States as your friend's employers.

Next, your friend should complete a nonresident income tax return for Utah. Many states compute state income tax for nonresidents as follows. Compute the state income tax $Z on the total income $X reported on the Federal 1040 as per state rules for nonresidents. If $Y is the income attributable to the State, then the tax owed to the State is ($Z)*(Y/X). But, regardless of how Utah computes the state income tax, this tax return needs to be completed before the California tax return.

Finally, your friend needs to complete the California state income tax return for residents. There will typically be a credit for income taxes paid to Utah, though this credit might not be the entire amount paid to Utah. That is, your friend will be "taxed twice" on at least some part of the income.

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1) Does he have to file in both states? How does he make sure he doesn't get taxed by CA on the income he already paid to Utah?

He has to file in both states. He's going to pay CA taxes on all the salaries (both the CA and Utah), and Utah taxes on the Utah salary. CA allows credit for other state taxes.

2) His combined income is over $106,800 (the limit for Social Security/Medicare), however each state withheld the full amount so he has paid SS/Medicare on $140,000 of income. Would he just get a larger federal refund of the amount he shouldn't have paid?

Yes, there's a line on 1040 for that in the "Payments" section (line 69). See the 1040 instructions and publication 505 on the specifics.

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