Taxpayer and spouse are US citizens. TP works overseas under a five-year contract. He reported his foreign earned income in 2019. Spouse lived and worked in California. TP went back the States to see his wife and in February 2020. He planned to leave in March 2020 for overseas company. However, he had to stay because of the Covid-19 lockdown. He worked remotely for the foreign company, received full foreign compensation, and paid foreign income tax credit. In October 2020, TP, spouse, children went to foreign country and started to live and work there. After the contract, TP planned to move to Washington State. There is a great chance they won’t stay in CA. The house in CA has been rented out before they moved in October 2020.
For federal income tax, he reported worldwide income. For California, can they file as part-year resident for 2020? Can they file as non-resident for 2021?
For taxpayer’s 2020 foreign earned income, should the taxpayer add it back to CA source income?
I saw some tax returns filed for US citizens with one spouse domicile in the CA and another spouse worked in the foreign country continuously (with 3 weeks visits to CA) every year. Basically, there are two types of filing: Type 1: file as Resident 540 and report all the income as foreign source income. Type 2: file 540NR with one spouse resident and another spouse non-resident and only report California salary, rental, stock income as CA source income. The difference is huge. Which one is correct? Thank you so much!