Nonresident and Part-Year Resident Tax Calculation
Nonresident and Part-Year Resident Tax CalculationLearning ObjectiveCompute part-year and non-resident California income tax.One of the most interesting features of California taxation is the method by which the California tax of nonresident and part-year resident taxpayers are calculated. The calculation is designed to make sure that nonresident or part-year resident taxpayers pay California tax at marginal rates as if the taxpayers had lived the full year in California. The steps necessary to calculate nonresident or resident tax liability are illustrated in the following example.ExampleGeorge is a single taxpayer who transferred to California on July 1, 2008. His salary for the year was $50,000, of which $30,000 was earned after he became a California resident. In addition, George had interest income for the year of $3,000 (of which $1,000 was California source) and dividend income of $5,000 (of which $2,500 was California source). George does not itemize deductions for Federal or California income tax purposes. For 2008 his California tax liability (note that the tax rate schedule is used for this example) is as follows:If the California tax were calculated directly on California taxable income of $29,984 ($33,500 − $3,692) the marginal tax rate would be 6%, instead of the 9.3% that he actually pays.Step 1Calculate total California AGI and deductions as a full-year California resident$58,000 = $50,000 + $3,000 + $5,000Step 2Calculate the actual California AGI$33,500 = $30,000 + $1,000 + $2,500Step 3Calculate 2008 California tax liability based on the total from step 1$2,746 = Tax on $54,308 [$58,000 − $3,692 (2008 single standard deduction)Step 4Multiply the California tax liability, less any exemption credit, from step 3 by the ratio of California AGI from step 2 to the California AGI from step 1$1,529 = [$2,746 − $99 (2008 exemption credit)] x .5776, the ratio of $33,500/$58,000)}Questions and ProblemsThe calculation of nonresident and part-year resident California tax is designed to make sure the taxpayer pays:
The lowest marginal rate of taxThe highest marginal rate of taxThe same marginal rate of tax as full-year California residentsThe highest conventional rate of taxNone of the aboveThe ratio used to calculate the tax liability for nonresident and part-year resident taxpayers is:
Federal AGI/California AGIFederal taxable income/California taxable incomeCalifornia AGI/Federal AGICalifornia taxable income/Federal taxable incomeNone of the abovePart-year California resident taxpayers file which tax form and associated schedules for California tax purposes?
Form 540AForm 540Form 540NRForm 540PYNone of the abovePaula, a single taxpayer, was transferred to California by her employer on May 1. Her salary for the year was $90,000, of which $60,000 was earned after she became a California resident. In addition, Paula had interest income for the year of $4,500 (of which $3,000 was California source) and dividend income of $3,000 (of which $2,000 was California source). Paula does not use itemized deductions for Federal or California income tax purposes. Calculate Paula’s California tax liability as a part-year resident. $_______________Helga, a head of household taxpayer, was transferred to California by her employer on October 1. Her salary for the year was $102,019, of which $50,000 was earned after she became a California resident. In addition, Helga had interest income for the year of $4,500 on California municipal bonds and dividend income of $4,800 (of which $1,200 was California source): She does not use itemized deductions for Federal or California income tax purposes. Helga had $3,500 of California withholding from her salary. Despite her head of household status, she does not qualify for a dependency exemption. Calculate Helga’s California tax liability as a part-year resident (use a copy of Form 540NR and Schedule CA (540NR)). $_______________