Virginia/ California Reverse Tax Credit

An increasing number of clients reached out to us asking if they would pay tax to multiple states on the same income. Most of them live in one state but receive income sourced to the other State.

Generally, you are allowed to claim a credit for income tax paid to a nonresident state when you are filing the other state’s resident tax return. For example, if you live in New Jersey but receive income from New York, you can claim a credit on your New Jersey tax return for income tax you paid to New York. In this way, you are not double paying tax on the same income.

If you are a Virginia resident, here are some exceptions that you need to know.

All sources of your income is subject to Virginia individual tax no matter where it is earned. Virginia laws also provide a credit for tax paid to another State. However, if you receive income from Arizona, California District of Columbia, or Oregon, you must claim the credit on your nonresident tax return. For example, if you live in Virginia but receive income from California, you will claim the credit on your CA nonresident tax return.

If you are a part-year Virginia resident, you are not allowed to claim the credit for income tax paid to another state unless you receive the other state’s income when you live in Virginia. For example, you moved from California to Virginia on April 1st. You receive income from California before April 1st. If you still receive income from California after April 1st, you may qualify a credit on your Virginia tax return. In this case, you must file two returns. You need to file a Part-year VA resident tax return and a VA nonresident to report the income correctly.

If you are a Virginia nonresident, generally speaking you can’t claim a credit unless you are a resident of Arizona, California, District of Columbia or Oregon and you pay income tax to one of these states. For example, if you live in California but pay tax to Virginia, you can claim a credit on your Virginia tax return. There is an exception for District of Columbia. Generally, DC residents are not required to file VA tax return because of reciprocity.

None of this material is tax, legal, or investment advice and is only conversational material provided for discussion purposes only. We are happy to assist with this at our contact information below or through emailing hello@dimovtax.com

George Dimov