Expert: Shirley McAllister, CPP, PHR - 5/2/2011

Question
Hi Shirley -

First, thanks for addressing my question.

I work as a consultant for a professional services firm which requires me to travel just about every week. Last year, I worked the majority of my time in California and New Jersey. I live in Texas.

My income consists of a base salary and a bonus that is based on the number of hours I bill each year. The bonus is paid in the following year.

My company claims that the bonus is subject withholding based on the state in which the underlying hours are earned, and as such withheld CA tax eventhough I have not worked there in approx. 10 months. That, of course, implies that I will need to file a CA return for 2011 as well, stating that I worked 0 hours in CA for 2011.

My employment contract states that the bonus is not earned and payable until 4/1 of the year following the actual hours. I contend that means the $$'s are taxable when paid.

What are your thoughts?

Guy

Answer
The amounts earned are taxable when paid. This is how it has always been.

California does have it's own rules and I do not have a company in California.

I cannot believe that this would be taxable in California because no work was done in California during the time this money is paid.

Shirley