Washington Remote Worker, California Employer: The Residency Question

A senior IC lives in Seattle and works remotely for Solstice Cloud, a California-headquartered public company. He has never been a California resident. He visits the Bay Area approximately 10-14 days per year for on-sites. His employer’s California payroll has been withholding California state tax on all his wages since he joined, including his substantial RSU vests. In March 2025, after three years of paying California tax he did not owe, he asked us to help him reclaim it and stop the ongoing error.

Situation

His employment:

Joined Solstice Cloud January 2022.
Remote hire, based in Seattle.
Reports to a manager in Solstice’s Mountain View office.
Payroll address in Solstice’s HRIS was incorrectly set to the company’s California office.
California state income tax withheld on 100% of his wages, including RSU vests.

His tax profile 2024:

Base: $245k.
Bonus: $38k.
RSU vest: $412k.
Total wages: $695k.
California withheld: 10.23% on supplemental + proportional on regular = approximately $52,000 for 2024.
California actually owed: a pro-rata amount based on California workdays.

California workdays calculation:

Total workdays 2024: ~230.
California workdays: 12 days of on-sites.
Ratio: 12/230 = 5.2%.
California-taxable wages: 5.2% × $695k = $36,140.
California tax at 9.3% on $36k: approximately $3,360.

California withheld $52,000. California owed: $3,360. Refund due: approximately $48,640.

The three-year pattern:

2022 California withheld ~$38,000. Actually owed ~$2,100.
2023 California withheld ~$45,000. Actually owed ~$2,800.
2024 California withheld ~$52,000. Actually owed ~$3,360.
Total over-withheld and filed-away refunds: approximately $127,380.

What we modeled

The question was two-part: (1) reclaim the over-withheld amounts, and (2) stop future over-withholding.

For reclaim:

File California Form 540NR (non-resident) for each of 2022, 2023, 2024.
Include workday allocation schedule showing 5-6% California workdays.
Attach FTB Publication 1031 residency determination narrative explaining Washington residency.
File amended Washington returns if any were filed (Washington has no income tax, so typically n/a).
File amended federal returns to back out the California-tax state deduction that was claimed (if he itemized).

For amended federal: he had not itemized any of the three years because he took the standard deduction. No federal amendment needed.

For the state side, California’s statute of limitations under Rev. & Tax. Code §19306 is 4 years from the return’s original due date for claiming refunds. All three years were within the window.

For ongoing:

Update employer HRIS to reflect Seattle work address.
File Form DE-4 (California) marking non-resident status.
Request quarterly income allocation reports from payroll to verify correct withholding.

Supporting residency documentation required:

Washington driver’s license.
Washington voter registration.
Washington property ownership (he owned a Seattle home).
Washington bank accounts.
Washington car registration.
No California residential address.
Utility bills and lease/mortgage documents.
Evidence of Washington-based employment activities (VPN logs showing Seattle IP, calendar entries for Seattle-based meetings, etc.).

What he did

He filed California Form 540NR for 2022, 2023, and 2024. Each return showed his wages, allocated workdays, and a resulting California tax liability around 5-6% of total wages. He attached a cover letter explaining the fact pattern and referencing FTB Publication 1031 for residency and FTB Publication 1004 for equity compensation sourcing.

Refunds processed:

2022: $35,900 refund, received 14 weeks after filing.
2023: $42,200 refund, received 9 weeks after filing.
2024: $48,640 refund, received 7 weeks after filing.
Total recovered: $126,740.

He updated his Solstice HRIS work address to Seattle in April 2025 and filed California Form DE-4 marking himself as a non-resident. From April forward, his payroll stopped withholding California on the Washington-worked portion of his wages, and California withholding was limited to the on-site visit workdays.

He also sent a formal letter to Solstice HR requesting that any future payroll setup for remote employees use the employee’s work location as the basis for state tax sourcing, not the employer’s headquarters. Solstice’s HR confirmed this was already policy but had been overridden by an incorrect default in their HRIS system for the 2022 cohort.

What he wishes he had done differently

He did not catch the error for 3 years. His first California paycheck in 2022 had California state tax deducted, and he assumed this was correct because his employer was in California. He did not research the sourcing rules. Had he looked into it in month 1, he would have identified the error immediately and saved 3 years of ~$40k per year cash-flow being tied up in excess California withholding.

The lesson: when you start a new remote role, verify state tax withholding matches your work location, not the employer’s HQ. This is especially important for Washington, Nevada, Florida, Texas, and other no-income-tax states where the delta between employer state and work state is large.

He also did not file any California returns during those three years. Remote workers sometimes assume that because they never went to California, they owe nothing and file nothing. But the workday-allocation issue means they do owe something for on-site days, and filing non-resident returns documents residency for future years. Not filing can leave a question mark that the FTB may flag.

Third: he did not check the RSU sourcing specifically. RSU vest income is sourced to work days between grant and vest, not vesting date. For grants that began while he was still in Washington, the sourcing was clean. But Solstice had RSU vests that spanned grant-to-vest periods during which his on-site days varied. His post-amendment calculations used 5-6% for simplicity, but a more precise per-grant sourcing might have produced slightly different results.

Fourth: he lost the time value on the $127k of California refund. Washington residents could have invested that cash at 4.5% in a money market fund over the 3-year period. The opportunity cost was approximately $13,000 of forgone interest.

Frequently asked

Does working remotely for a California company make me a California resident?

No. Residency is a function of your personal ties, not your employer’s location. See FTB Publication 1031. California uses factors like your domicile, driver’s license, voter registration, property, and physical presence to determine residency.

Do I owe California tax on any of my wages?

Yes, to the extent you worked in California on specific days. California uses a workday-allocation formula: (California workdays / total workdays) × total wages = California-taxable portion.

What counts as a California workday?

Days you physically performed services in California. Travel days, meeting days, and on-site work days count. Days you were in California for vacation or non-work purposes do not.

How do I fix an over-withholding?

File a non-resident return (Form 540NR) claiming the refund. Document your workday allocation. California’s statute of limitations for refund claims is 4 years from original return due date under Rev. & Tax. Code §19306.

What if my employer refuses to change my payroll setup?

Escalate to HR, legal, or payroll directly. Some employers are slow to adapt because remote work spans multiple states and complicates their withholding. If HR cannot fix it, file quarterly estimated payments in your correct state (if any) and file non-resident returns in the employer’s state to reclaim the over-withholding. Continue to document residency for your own protection.

Composite scenario drawn from common patterns in our advisor network's casework. Names, companies, and exact numbers are illustrative. Not tax, legal, or investment advice.