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We are a married couple from India working in CA and we are nonresident aliens for the purpose of taxes for 2012. From what I understand, married people living in a community state like California, who file their taxes separately, have to follow the community state laws in determining their taxes by treating their combined income as community income for the purpose of Federal as well as State tax returns.

However, community state laws are not applicable on the wages of nonresident aliens for the purpose of Federal tax returns, as mentioned in Pub 519. They treat their W2s separately and treat their income as their own for the purpose of Federal taxes. Could someone tell me if same is the case with state taxes as well? Or are nonresident aliens supposed to follow community property law while filing state returns as married filing separately? It is not written clearly anywhere and the tax firms usually know only about the cases where applicants are residents of US.

Thank you in advance.

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If you're resident in the State of California then you must follow the State law. Note that the State of California has different rules in determining residency status. It is likely that you're resident for State purposes even though you're not resident for Federal purposes.

Check if there's special treatment due to a treaty (between India and California, or if states are explicitly mentioned in the India-US tax treaty). You can have a professional (CPA or EA) help you with that, just make sure its a licensed professional (California doesn't license EAs, but does license CPAs or unenrolled tax preparers).

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  • I did check about residency status for CA and it looks like we are more inclined to be nonresidents, than residents for the state purpose too. So how are nonresidents supposed to file their tax returns on income from CA sources? I was thinking of filing with separate W2s for Federal purposes, and as community income for the purpose of state, but then I read that one is supposed to transfer income details from one's 1040(NR) on to 540(NR). How will these match? I did ask some tax professionals as well, and the answers were all different. Hence the confusion.
    – Perfervor
    Commented Mar 14, 2013 at 7:10
  • @Perfervor I doubt you're non-residents in CA. You said you're working in CA, I assume it also means you live in CA. If you're a W2 employee - you're likely a resident. CA is very possessive when it comes to tax residency. Re the matching 1040 to 540 - there's schedule CA for that. It would be my advice for you to get a professional to prepare your taxes. It is something that is very easy to mess up (been there, done that, had my own share of confusion).
    – littleadv
    Commented Mar 14, 2013 at 7:11
  • I have thought of taking help many times before, yet when I hear of the horror stories of mistakes that had been made by these professionals on many of my friends' returns, I tend to think it is better to be informed about all these catches before one does consult a professional. In the end, it is your own liability and it is hard to find reliable professionals in this field. But thanks for your advice! I will definitely take professional help once I am satisfied that I know enough.
    – Perfervor
    Commented Mar 14, 2013 at 7:20

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