What’s New?
The Federal Veterans Auto and Education Improvement Act (VAEIA) of 2022 was enacted on January 5, 2023, and has made important amendments to the Servicemembers Civil Relief Act (SCRA). California conforms to these new provisions:
Spouse of a Servicemember: A spouse of a servicemember will neither gain nor lose residency or domicile for taxation purposes solely by being present or absent in any tax jurisdiction to accompany the servicemember in compliance with military orders.
Tax Elections for Servicemembers and Spouses: For any taxable year of the marriage, servicemembers and their spouses may elect to use for taxation purposes:
- The residence or domicile of the servicemember.
- The residence or domicile of the spouse.
- The permanent duty station of the servicemember.
Understanding Residency Status
Determining your residency status in California is crucial for income tax purposes. This determination is based on examining all the circumstances of your situation. Here’s what you need to know:
Resident of California: A resident is someone who is:
- Present in California for purposes other than temporary or transitory ones.
- Domiciled in California but outside the state for a temporary or transitory purpose.
Nonresident of California: Any individual who does not meet the criteria for a resident is considered a nonresident.
Part-Year Resident: An individual who is a California resident for part of the year and a nonresident for the rest of the year.
Guidelines for Determining Residency
Residency is generally established by where you have the closest connections. Here are some factors to consider:
- Time Spent: Compare the amount of time you spend in California versus time spent outside California.
- Family Location: Where your spouse/registered domestic partner (RDP) and children are located.
- Principal Residence: Location of your main home.
- Driver’s License and Vehicle Registration: State that issued your driver’s license and location where your vehicles are registered.
- Professional Licenses and Voting Registration: State where you maintain professional licenses and where you are registered to vote.
- Bank Accounts and Healthcare Providers: Location of your bank accounts and where your medical professionals, accountants, and attorneys are located.
- Social Ties: Your place of worship, professional associations, and social or country clubs.
- Permanent Work Assignments: Location and permanence of your work assignments.
Safe Harbor Rule
Individuals domiciled in California but leaving under employment-related contracts for at least 546 consecutive days are considered nonresidents unless:
- They have intangible income exceeding $200,000 in any taxable year during the contract.
- The primary purpose of the absence is to avoid personal income tax.
Filing Requirements
Residents: Must file a California tax return if their gross or adjusted gross income exceeds specific thresholds.
Nonresidents and Part-Year Residents: Must file a California tax return if they have income sourced from California and their gross or adjusted gross income exceeds the specified thresholds.
Registered Domestic Partners (RDPs): Must file using either the married/RDP filing jointly or married/RDP filing separately status.
Which Form to File
- Full-Year Residents: File Form 540 or Form 540 2EZ.
- Nonresidents and Part-Year Residents: File Form 540NR.
Key Points for 2023
- California residents are taxed on all income regardless of its source.
- Nonresidents are taxed only on income sourced from California.
- Part-year residents are taxed on all income received while residents and only on California-sourced income while nonresidents.