State Tax Issues for Non - Resident Scholars

State Tax Issues for Non - Resident Scholars PowerPoint PPT Presentation


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2. Introduction. Residency affects the way a person is taxed:A California resident is taxed on all income from everywhereA non-resident is taxed on income derived from sources within California. 3. Agenda. California Residency LawsItems taxed by CaliforniaTaxation of fellowships, stipends and

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State Tax Issues for Non - Resident Scholars

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1. State Tax Issues for Non - Resident Scholars Hopefully by this time you have taken some time to understand the IRS Federal Tax Law and your specific taxing requirements. Were here today representing the Franchise Tax Board, California’s Taxing Agency. The IRS has specific guidelines that you follow in order to determine your residency status. California has completely different rules. We’re here today to help you understand California’s rules and how they apply to you. Our rules were developed for US Citizens moving state to state. They don’t easily transfer to your specific situations. So were here today to give you some help on how to file your California Tax ReturnHopefully by this time you have taken some time to understand the IRS Federal Tax Law and your specific taxing requirements. Were here today representing the Franchise Tax Board, California’s Taxing Agency. The IRS has specific guidelines that you follow in order to determine your residency status. California has completely different rules. We’re here today to help you understand California’s rules and how they apply to you. Our rules were developed for US Citizens moving state to state. They don’t easily transfer to your specific situations. So were here today to give you some help on how to file your California Tax Return

2. 2 Introduction Residency affects the way a person is taxed: A California resident is taxed on all income from everywhere A non-resident is taxed on income derived from sources within California So why do we even focus on residency? Why is it important? It is important because – go to slide.So why do we even focus on residency? Why is it important? It is important because – go to slide.

3. 3 Agenda California Residency Laws Items taxed by California Taxation of fellowships, stipends and scholarships State & Federal Differences Calculation of California tax Step–by–step completion of tax return Ok so here is what we are planning on going over today. We are going to go over CA Residency Laws. We will go over items taxed by California. Again, a lot of our tax law follows that of the IRS but since we are a separate taxing agency we have our own laws for some things.Ok so here is what we are planning on going over today. We are going to go over CA Residency Laws. We will go over items taxed by California. Again, a lot of our tax law follows that of the IRS but since we are a separate taxing agency we have our own laws for some things.

4. 4 Residency: Definition of Resident: Every person who is: In this state for other than a temporary or transitory purpose or Domiciled in CA and who is outside for a temporary or transitory purpose Definition of Non-Resident: Every person other than a resident At the end of the slide say: So you can see that the definition of a resident is very different for California than it is for the IRS. Again, please keep in mind that Residency law was written for people moving from state to state not for people working in the state on Visas.At the end of the slide say: So you can see that the definition of a resident is very different for California than it is for the IRS. Again, please keep in mind that Residency law was written for people moving from state to state not for people working in the state on Visas.

5. 5 What Is Temporary? A person is in California for a temporary and transitory purpose if he/she is Passing through the state Here for a brief rest Here for a vacation Here for short period to complete a particular transaction, contract, etc.

6. 6 Where is your domicile? The location of your permanent home The place where you intend to return to whenever absent After reading slide say: So for your situation, if you intend to return to your country of origin after completing whatever you are doing here, then that country would be your domicile. Domicile does not mean the same thing as residencyAfter reading slide say: So for your situation, if you intend to return to your country of origin after completing whatever you are doing here, then that country would be your domicile. Domicile does not mean the same thing as residency

7. 7 Presumption of Residency Every individual who spends in the aggregate more than nine months of the taxable year within this state shall be presumed to be a resident. The presumption may be overcome by satisfactory evidence that the individual is in the state for a temporary or transitory purpose. Ok, so you can see that rules are kind of vague. Yet, we do have something that is a little bit more concrete. The nine months presumption. Read slide. So this is a little bit more concrete but that last part is still based on the facts and circumstances of the situationOk, so you can see that rules are kind of vague. Yet, we do have something that is a little bit more concrete. The nine months presumption. Read slide. So this is a little bit more concrete but that last part is still based on the facts and circumstances of the situation

8. 8 Look to Connections Factors to consider: Amount of time spent Location of spouse and children Location of principal residence Location driver’s license was issued, vehicles registered Location of real property and investments Permanence of work assignment Location of social ties Here are some additional things that California law looks at when determining residency But again keep in mind that these laws were written for people who move state to State and people in California from another country would most likely appear to be a resident when you take these factors into consideration.Here are some additional things that California law looks at when determining residency But again keep in mind that these laws were written for people who move state to State and people in California from another country would most likely appear to be a resident when you take these factors into consideration.

9. 9 Foreign Scholars If file 1040NR with the IRS File 540NR (nonresident) for California Ok, so now I’ve explained to you what you will see if you were to try to research California Residency law. If you were trying to make a determination of your residency status based on the law, for most of you would probably appear to be a California Resident. But, if for the IRS you are considered a non resident, then it wouldn’t make sense to classify you as a resident of California. Meaning, if you aren’t a resident of the US, then how could you be a resident of California. So we are here today to tell you that if you file with the IRS as a non resident then it would only make sense that you file as a non resident for California as well. Furthermore, if you were to try to find this treatment within California Tax law, you won’t be able to find it. You are only gonna hear it now. One last not is based on IRS rules you have determined that you are a Resident for federal then you’ll have to go back to California residency law to determine if you are a California resident as well. Ok, so now I’ve explained to you what you will see if you were to try to research California Residency law. If you were trying to make a determination of your residency status based on the law, for most of you would probably appear to be a California Resident. But, if for the IRS you are considered a non resident, then it wouldn’t make sense to classify you as a resident of California. Meaning, if you aren’t a resident of the US, then how could you be a resident of California. So we are here today to tell you that if you file with the IRS as a non resident then it would only make sense that you file as a non resident for California as well. Furthermore, if you were to try to find this treatment within California Tax law, you won’t be able to find it. You are only gonna hear it now. One last not is based on IRS rules you have determined that you are a Resident for federal then you’ll have to go back to California residency law to determine if you are a California resident as well.

10. 10 Why Is Residency Important? Residency affects the way a person is taxed: A California resident is taxed on all income from everywhere A non-resident is taxed on income derived from sources within California So lets recap, why is residency important? If you are a resident you are taxed on everything And if you are a non resident, you will only be taxed on income that is sourced in California. So now,Charlotte will talk about sourcingSo lets recap, why is residency important? If you are a resident you are taxed on everything And if you are a non resident, you will only be taxed on income that is sourced in California. So now,Charlotte will talk about sourcing

11. 11 Source Income Pertains to the Place of Origin The source of “tangible” income is where it is earned or located The source of “intangible” income is the state (or country) where the recipient is a resident This is how California sources income which is completely different then the way Federal sources income. Explain that there are two types of Income Tangible and IntangibleThis is how California sources income which is completely different then the way Federal sources income. Explain that there are two types of Income Tangible and Intangible

12. 12 Sourcing of Income: List of how California Sources income. Read chart above For federal purposes it is a different definition. If payment is coming from a different country then the federal side doesn’t look at it or tax it. California does look at it and taxes all income received while the taxpayer is in California even if the income is from a different country and the services are preformed in California.List of how California Sources income. Read chart above For federal purposes it is a different definition. If payment is coming from a different country then the federal side doesn’t look at it or tax it. California does look at it and taxes all income received while the taxpayer is in California even if the income is from a different country and the services are preformed in California.

13. 13 Fellowships, Stipends and Scholarships Taxable income: Wages/Salary Payments, including Fellowships, teaching and research assistantships Amounts received from foreign employers Fellowship, Stipend, and Scholarship amounts not used for payment of tuition and fees or books, supplies and equipment required for courses of instruction California does not conform to Sec. 872 regarding compensation paid by a foreign employer being excluded from gross income California does conform to Sec. 893 regarding exclusion of compensation of employees of foreign governments (or international organizations) The European space agency The international telecommunications satellite organization The organization of American states The Pan-American health organization California does not conform to Sec. 872 regarding compensation paid by a foreign employer being excluded from gross income California does conform to Sec. 893 regarding exclusion of compensation of employees of foreign governments (or international organizations) The European space agency The international telecommunications satellite organization The organization of American states The Pan-American health organization

14. 14 California & Federal Differences California has no tax treaties with other countries No foreign tax credit Source of income has different meaning World-wide income is required to be reported for California Federal doesn’t require world wide income to be reported. California does require it, and in the example that is coming up will show why and how.Federal doesn’t require world wide income to be reported. California does require it, and in the example that is coming up will show why and how.

15. 15 California Forms for Non-residents 540 - NR short form 540 – NR long form

16. 16 Who Can Use the Short Form? Single Only wages, interest and unemployment income Standard deduction Remember that for federal you have to itemize your deductions but for California you can use either the standard or itemize deduction.Remember that for federal you have to itemize your deductions but for California you can use either the standard or itemize deduction.

17. 17 You Cannot Use the Short Form If You Have: Income excluded by treaty Income received from another country during 2008 prior to moving to the U.S. Taxable scholarships, fellowships, or stipends Any California adjustments to income Itemized deductions Estimated payments

18. 18 Calculation of California Tax: 540 NR long form Federal adjusted gross income Subtractions & additions from schedule CA Adjusted gross income from all sources (world-wide income) Itemized or standard deduction Total taxable income from all sources (world-wide) Overview of what is included on the form. Please turn to the 540NR long form in booklets. After page 23 in your booklet.Overview of what is included on the form. Please turn to the 540NR long form in booklets. After page 23 in your booklet.

19. 19 Calculation of California Tax: Schedule CA part II Column A – federal amounts Column B – subtractions Column C – additions Column D – total amount as if you were a resident Column E – California source amounts Schedule CA is after 48 in your bookletSchedule CA is after 48 in your booklet

20. 20 Calculation of California Tax: Schedule CA part III Adjustments to federal itemized deductions Schedule CA part IV Calculate California taxable income

21. 21 Calculation of California Tax: 540 NR part V – calculate tax Find tax on world-wide income Compute California tax rate Prorate exemption credits Calculate California tax before credits 540 NR side 2 Apply taxes paid or withheld Determine if tax is due or owed

22. 22 Next: Step–by-step Examples Now Renei will go over the step by step examples.Now Renei will go over the step by step examples.

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