Residency and Part-Year Resident Taxation in California

California taxes residents differently than nonresidents — and if you move into or out of the state during the year, the rules can get especially complicated. Understanding how California residency and part-year resident taxation works is critical, because the classification determines what income is taxable and how much tax you owe.

California has some of the most aggressive residency rules in the country, and mistakes can be costly.

How California Defines Residency

California does not rely solely on where you live or how many days you spend in the state. Instead, the Franchise Tax Board (FTB) looks at the totality of your facts and circumstances to determine whether you are a resident.

In general, you are considered a California resident if:

• California is your domicile (your permanent home), or

• You are in California for other than a temporary or transitory purpose

Residents are taxed on all income from all sources worldwide, regardless of where it is earned.

What Is a Part-Year Resident?

You are considered a part-year resident if:

• You move into California during the year, or

• You move out of California during the year

Part-year residents are taxed:

• On worldwide income while they are a California resident, and

• On California-source income only while they are a nonresident

This requires allocating income between resident and nonresident periods, which is often where errors occur.

Income Allocation for Part-Year Residents

For part-year residents, income must be carefully split based on when it was earned and where it was sourced. Examples include:

• Wages allocated based on workdays inside vs. outside California

• Bonuses tied to service periods

• Stock compensation (RSUs, options) requiring detailed vesting analysis

• Business and rental income sourced to California property or activity

Improper allocation can result in overpaying — or underpaying — California tax.

California Residency Audits Are Common

The FTB actively reviews residency claims and may request:

• Lease or home purchase agreements

• Utility bills

• Driver’s license and vehicle registration

• Voter registration

• Travel records and calendars

• Bank and investment account activity

Simply changing your address is not enough to end California residency.

How All California Accountancy Can Help

Residency and part-year taxation require careful analysis and proactive planning. At All California Accountancy, we help clients:

• Determine residency status under California law

• Properly allocate income for part-year returns

• Prepare defensible residency positions

• Respond to FTB residency audits and inquiries

• Plan moves into or out of California tax-efficiently

Navigating California residency rules alone can be overwhelming — especially when significant income is involved.

Disclaimer

This article is for educational purposes only and does not constitute legal, tax, or accounting advice. Consult a qualified CPA regarding your specific situation.

IRS Circular 230 Disclosure: Any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties or promoting, marketing, or recommending any transaction or matter addressed.