One of my client works for a company registered in CA. He lives and work in NJ. For some reason, CA company withhold the CA taxes for my client. Does my client has to pay CA income taxes even if he/she has not lived or worked in CA? If yes, can we claim the credits for NJ taxes. Please let me know how can we claim the credits in NJ tax return?
They should not have withheld CA taxes, so now he owes NJ and gets the CA taxes back. There is no credit since he does not owe CA.
I don't know that you should plan on getting it back any time soon, since now CA is even withholding tax refunds owed to its own residents.
EDIT: I have only three CA clients, but I've instructed each of them to make sure they are UNDERwithheld for CA taxes. It may cost a little interest, but that's far better than having a refund confiscated.
He should first contact the employer, who should make the correction. If the employer balks, you could file a 540NR showing no time in CA, no ownership of property in CA, and zero CA income. This may or may not work, and the taxpayer would still owe NJ tax.
If it were my client, I would personally call the employer on behalf of the client and demand a correction. I have even sent employers copies of tax laws to force them to make corrections. It worked every time.
I would also try putting pressure on the employer to correct their error. At this stage of the game, I'm going to guess that the employer will balk at making the change. Plan B would be to file a 540NR like Charlotte suggested but also attach an explanation to the return to tell your client's story about how his employer is a complete idiot and you are just filing to get his withholding back.
It may be the employee's fault, not the employer. Did the employee fill out proper withholding forms? In the absence of such, the employer will normally withhold the employer's state tax. Also,employee has an obligation to look at his paystubs and see what is being withheld. This could have been caught on the first paycheck. At this point, employee should get employer to stop withholding CA tax. File Form 540NR to get a refund of tax withheld.
The employer should know where the employee worked.
If the pay stub said "CA WH" the employee should share equal blame. If the pay stub only said "state WH", it would be pretty tough for him to know which state was being withheld.
