I'm a W-2 employee for a California company. In 2025, I worked from California (7 months), Colorado (3 months), and Texas (2 months). My employer only withheld California state taxes. Do I owe Colorado taxes too? Texas has no income tax so that's fine.
My CPA says I might owe in both CA and CO but I'd get a credit to avoid double taxation. Is this right?
Your CPA is correct. Colorado requires nonresident returns for income earned while physically present in the state. You'd file a CO nonresident return for the 3 months of income earned there. California would give you a credit for taxes paid to Colorado on the same income. Net tax impact is usually minimal, but the filing burden is real.
The key is tracking your physical location carefully. Keep a log of which days you worked from which state.
Be careful with California specifically. CA has very aggressive sourcing rules for remote workers. If your employer is CA-based, CA may claim the right to tax ALL your income regardless of where you worked. Talk to a CA tax specialist before filing.
That CA convenience rule is concerning. So even though I physically worked from CO for 3 months, CA might still tax that income?
California doesn't officially have a convenience rule like New York, but the FTB has been increasingly aggressive about this. If your move to CO was temporary and at your own convenience (not employer-required), CA may argue the income is CA-sourced. The safe harbor is if your employer has a CO office and you were required to work there.
As an employer, this is becoming a nightmare. We have employees working from 12 states. We now require employees to notify us before working from a new state for more than 14 days because it creates withholding obligations and potentially business nexus for our company lol.
Does any of this apply to 1099 contractors? I do gig work in multiple states.
For 1099 contractors it depends on where the work is performed and where the customer is located. Different states use different sourcing rules (cost of performance vs. market-based sourcing). Generally less aggressive than W-2 situations but still requires tracking.
Update: Met with a CA tax attorney. Since I was working from CO voluntarily (not employer-required), CA is likely going to tax all my income. I'm filing in both states with a credit to avoid double taxation. Going to track my location daily going forward.