How California Sources Remote Work Income

California follows a physical-presence rule for employees. Your wages are sourced to the state where you physically sit when you perform the work. If you’re in your LA apartment on your laptop, that income is California-source. If you fly to Texas for a week of meetings, that week’s pay is Texas-source (though Texas has no income tax, so it’s a moot point there).

This is a real difference from New York. California does not have a convenience-of-the-employer rule. If you leave California and work remotely for a California employer from Nevada, California won’t tax those wages — as long as you actually perform the work from Nevada. The FTB cares about where your body is, not where the company’s letterhead says.

LA Residents Working for Out-of-State Employers

This one is simple. If you live in Los Angeles, California taxes you on your worldwide income. Period. It doesn’t matter if your employer is headquartered in Seattle, Austin, or New York. You’re a California resident. You file a California return. You pay California’s rates, which top out at 13.3%.

If the employer’s state also taxes you on that income — say, New York through its convenience rule — you claim the Other State Tax Credit on Schedule S of your California return. The credit equals the lesser of the tax paid to New York or the California tax on that income. Since California’s top rate is higher than New York’s, you’ll pay New York’s rate through withholding, get a credit on your CA return, and owe California the difference. The total tax bill lands at California’s rate either way.

People Who Left LA but Still Work for a CA Employer

The post-pandemic migration out of California created a wave of tax questions. If you moved from LA to Austin, Nashville, or Miami and kept your LA-based job, California does not tax your wages for the days you work from your new state. This is where the physical-presence rule works in your favor.

But there are catches. If you travel back to LA for meetings, those days create California-source income. And if the FTB decides you didn’t truly change your domicile — you kept your apartment in Silver Lake, you’re still on the lease, your kids are enrolled in an LA school — they’ll argue you’re still a California resident and tax your entire income at CA rates.

California domicile audits are thorough. The FTB looks at where you vote, where your car is registered, where your bank accounts are, where your doctors and dentists are located, and where you spend the majority of your time. Simply getting a Texas driver’s license isn’t enough if everything else in your life still points to LA.

The Day-Count Problem

When you work in multiple states during the year, income gets allocated based on days worked in each state. The formula is straightforward: (days worked in State X / total working days in the year) multiplied by your total compensation. But the details get messy.

What counts as a “day worked” in California? A phone call from the airport during a layover at LAX? A two-hour meeting in downtown LA on an otherwise out-of-state trip? The FTB takes a broad view: any day you perform services in California, even partial, is a California work day. Some practitioners argue for a more nuanced approach, but the safest position is to count any day with California work activity as a California day.

Keep a travel log. Not a vague reconstruction at tax time, but a real-time calendar showing where you worked each day. Pair it with flight records, hotel receipts, and badge-in data. If the FTB audits you three years from now, your memory won’t be good enough.

Employer Registration and Withholding Across States

LA-based employers with remote workers in other states need to register for withholding in each state where employees perform work. Hiring one person in Oregon means registering with Oregon’s Department of Revenue, setting up Oregon withholding, and filing quarterly wage reports. Scale that to 15 states and the compliance cost is real.

Some states have economic nexus thresholds — if you have one employee working from their home in Colorado, that creates nexus for the employer’s business activities in Colorado. This can trigger not just withholding requirements but also corporate income tax obligations, sales tax obligations, and potentially local business taxes. One remote hire can open several cans at once.

Freelancers and Independent Contractors in Multiple States

If you’re a freelancer based in LA with clients across the country, sourcing rules depend on the type of income. Service income is generally sourced to where the services are performed. If you write code from your LA desk for a client in Chicago, that’s California income. If you fly to Chicago and work on-site, those days are Illinois income.

California’s rules for independent contractor sourcing under the market-based sourcing framework add another layer. For sales of services, the income is sourced to where the customer receives the benefit. This can differ from where you perform the work, depending on the type of service and the specific facts. A tax preparer in LA preparing a return for a client in Nevada has Nevada-source income under market-based sourcing — but they also have California-source income under the physical-presence rule for W-2 equivalence. The rules aren’t always intuitive.