If you are a California resident who accepts overseas assignments, or an international employer with California residents working abroad, you should know about the California Safe Harbor.
The California Safe harbor is available for certain individuals leaving California under employment-related contracts. The safe harbor provides that an individual domiciled in California who is outside California under an employment-related contract for an uninterrupted period of at least 546 consecutive days will be considered a nonresident unless any of the following apply:
- The individual has intangible income exceeding $200,000 in any taxable year during which the employment-related contract is in effect.
- The principal purpose of the absence from California is to avoid personal income tax.
The spouse or Registered Domestic Partner of the individual covered by this safe harbor rule will also be considered a nonresident while accompanying the individual outside California for at least 546 consecutive days. Return visits to California that do not exceed a total of 45 days during any taxable year covered by the employment contract are considered temporary.
Example 1 – You are a California resident. You transferred to your employer’s Germany office for a two-year work assignment. You visited California for a three-week vacation. Under the safe harbor rule, you were a nonresident of California for the two years you were in Germany. Your three-week visit to California is considered temporary.
Example 2 – You and your spouse are California residents. You agreed to work overseas for 20 months under an employment contract. Your family remained in San Diego, CA. During those 20 months you visited your family in San Diego for a month. You can be considered a nonresident during your absence under the safe-harbor rule. Your month-long visit to California is considered temporary. During the year, you earned $80,000 on your overseas assignment and your spouse earned $30,000 as a teacher in San Diego. You did not have any other income. The tables on the next page show how to report income if you filed a joint income tax return or separate income tax returns.
*Half of your wages are taxable to California because California is a community property state and your spouse/RDP is a resident of California.
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State of California Franchise Tax Board. (2018). Guidelines for Determining Resident Status. FTB Publication 1031