California Income Tax Rates & Brackets (Tax Year 2025 — Filed in 2026)

Remote Workers and Multi-State Taxation

Living in California, Working for Out-of-State Employer

As a California resident, you owe California income tax on ALL income, regardless of where your employer is located.

What this means:

• Employer location does NOT determine tax obligation
• Income from employers in other states is fully taxable in California
• California taxes residents on worldwide income
• You must file a California resident return reporting all income

Example: A California resident working remotely for a New York company owes California income tax on all wages, even though the work is performed at home in California for a New York employer.

Credit for taxes paid to other states: If your employer withholds income tax for their state, you may be able to claim a credit on your California return for taxes paid to the other state.

Source: https://www.ftb.ca.gov/file/personal/residency-status/index.html

Working in California, Living in Another State

Non-residents who perform work IN California owe California income tax on income earned from California sources.

Physical Presence Rule: Income is sourced to California based on where work is physically performed.

How to calculate California-source income: One method is to multiply your total annual income by the ratio of days worked in California over total days worked. For example:

• If you worked 50 days in California out of 250 total work days
• California-source income = Total income × (50/250) = 20% of total income

Form required: Form 540NR, California Nonresident or Part-Year Resident Income Tax Return

Source: https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html

⚠️ Interstate Tax Risk Indicator

Remote workers involving California commonly encounter tax complications with specific states:

Working with these states requires careful planning:

• New York – Applies “convenience of the employer” rule that may tax non-residents working remotely
• Arkansas – May assert tax jurisdiction on remote workers
• Delaware – Complex rules for remote workers
• Nebraska – Special sourcing rules for remote income
• Pennsylvania – 200+ local income tax jurisdictions can affect multi-state workers

Important: California does NOT apply a “convenience of the employer” rule. California only taxes non-residents on income from work physically performed in California.

Source: https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html

“Convenience of the Employer” Rule

California does NOT apply a “convenience of the employer” rule.

Non-residents are taxed only on income from work physically performed in California. If you are a non-resident working remotely from your home state for a California employer, and you never physically work in California, you do not owe California income tax on that income.

Key principle: For W-2 employees, California sources income based on where services are physically performed, not where the employer is located.

Exception – Independent Contractors: California has different sourcing rules for independent contractors. For independent contractors and sole proprietors, income is sourced to where the benefit of the service is received by the customer, not where the contractor performs the work.

Source: https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html

Reciprocal Agreements

California does NOT have reciprocal agreements with other states.

This means:

• California residents working in other states must file returns in both California and the work state
• Non-residents working in California must file a California non-resident return
• You cannot file an exemption certificate to avoid withholding
• Credits for taxes paid to other states are available to avoid double taxation

Source: https://www.ftb.ca.gov/file/personal/residency-status/index.html

Multi-State Tax Filing

When earning income in multiple states:

1. File a resident return in California reporting all income from all sources
2. File non-resident returns in other states where income was earned
3. Claim a credit on California return for taxes paid to other states using Schedule S (Other State Tax Credit)

Forms required:

• California Form 540 – California Resident Income Tax Return
• Schedule S – Other State Tax Credit
• Non-resident returns for each state where income was earned

Important: The credit is limited to the lesser of:

• The tax paid to the other state, OR
• The California tax on the same income

Source: https://www.ftb.ca.gov/file/personal/credits/index.html