What California Form 540NR (2018) Is For
California Form 540NR (2018) is the individual income tax return for people who were not full-year California residents. You use it if you lived outside California but had California-source income, or if you moved into or out of the state during 2018. Instead of taxing your worldwide income like a full-year resident individual income tax return, California only taxes the portion tied to California.
Nonresidents pay tax only on California-source income, such as wages for work physically performed in California, rental income from California property, or business income from operations in the state. Part-year residents pay tax on all income received while living in California, plus California-source income earned during periods they lived elsewhere. Because of this split, the form uses a special “California percentage” calculation to determine your final tax liability.
When You’d Use California Form 540NR (2018)
You use Form 540NR when you were a nonresident or part-year resident at any time in 2018 and meet California filing requirements. For example, you might have moved to California mid-year for a job, or moved out but kept rental property or a business here. In those cases you still need to file a tax return with California even if you already filed in another state.
The original filing deadline for the 2018 Form 540NR was April 15, 2019. California automatically extended time to file to October 15, 2019, but not time to pay. If you did not pay enough by April 15, you could owe late payment penalties and interest, even if the return itself was filed by October. For amended returns, you file another Form 540NR (same Short or Long version as your original) with Schedule X to explain each change.
Key Rules or Details for 2018
Residency Status and Filing Requirements
The first step is deciding whether you were a nonresident, part-year resident, or full-year resident. California looks at where your closest ties are—your home, family, business, and where you spend most of your time. Working outside California for at least 546 consecutive days under contract, while spending no more than 45 days per year in the state, can support nonresident treatment.
You must generally file Form 540NR if your gross income exceeds the thresholds for your filing status, age, and dependents. For 2018, a single filer under 65 with no dependents had to file if gross income exceeded $17,693; married/RDP couples filing jointly under 65 needed to file if gross income exceeded $35,386. Similar filing requirements apply across other statuses.
California vs. Federal Rules
California conforms to the Internal Revenue Code as of January 1, 2015, with many modifications. Most Tax Cuts and Jobs Act changes—like the federal rules on GILTI, Section 965 deemed repatriation, and certain deduction changes—do not apply on the California return. You use Schedule CA (540NR) to adjust from federal to California income, adding or subtracting items where treatment differs. This is critical to correctly compute California income tax and avoid errors on your past due return or original filing.
California Percentage Method
Form 540NR uses a two-step tax computation:
- First, you compute tax on your total taxable income as if you were a full-year resident.
- Then you compute your “California percentage” by dividing California taxable income by total taxable income.
Your total tax is multiplied by this percentage to arrive at the actual California tax liability. Most credits and exemption credits are also prorated using this percentage so you only receive the portion tied to California.
Special Groups
Certain taxpayers have additional rules:
- Military servicemembers domiciled outside California can exclude military pay from California income; those domiciled in California generally must include it.
- Federally recognized tribal members living in and earning income from federally recognized California Indian country became exempt on that earned income in 2018.
Step-by-Step (High Level)
Step 1: Complete Your Federal Return
Start by completing your federal individual income tax return (Form 1040, 1040NR, or 1040NR-EZ). Your federal adjusted gross income, filing status, and many income items flow directly into Form 540NR.
Step 2: Determine Residency and Gather Records
Decide whether you were a nonresident or part-year resident and identify the exact dates you lived in or outside California. Gather W-2s showing California withholding, 1099s, K-1s, records of estimated payments, and documents that support your residency (leases, travel logs, employment contracts).
Step 3: Complete Form 540NR and Schedule CA (540NR)
Fill in personal information, filing status, and exemptions. Then complete Schedule CA (540NR) to reconcile federal and California income. Use:
- Columns A–D for federal amounts and California adjustments
- Column E to show the portion of income that is California-source or earned while a resident
This column E is the backbone of your California percentage calculation.
Step 4: Choose Deductions and Compute Tax
Decide whether to claim the standard deduction or itemized deductions. For 2018, the standard deduction was $4,401 for single or married/RDP filing separately and $8,802 for married/RDP filing jointly, head of household, or qualifying surviving spouse. If you itemize, you must use the Long Form 540NR and follow California rules, which differ from federal itemized deductions.
Compute taxable income as if you were a full-year resident, then use tax tables (for income up to $100,000) or rate schedules (over $100,000). Multiply that tax by your California percentage to find your California income tax.
Step 5: Apply Credits, Payments, and Figure Balance
Apply prorated exemption credits and other credits such as the California Earned Income Tax Credit, renters credit, or business credits. Enter all California withholding, estimated payments, and any excess SDI/VPDI credit. After all credits and payments, determine whether you owe additional tax liability or are due a refund, then choose direct deposit or check.
Common Mistakes and How to Avoid Them
- Wrong residency classification
- Miscounting days in California or misapplying the 546-day rule
- Not tracking time spent in and out of the state
- Incorrect standard or itemized deductions
- Using federal deduction amounts instead of California 2018 amounts
- Forgetting that California disallows or limits certain federal deductions
- Not prorating credits and exemptions
- Applying full-year credits instead of multiplying by the California percentage
- Withholding and SDI errors
- Claiming withholding shown for another state instead of California
- Misstating SDI/VPDI credits from W-2s
- Amended return mistakes
- Using original return numbers instead of the corrected amounts
- Failing to attach Schedule X explaining each change
- Missing attachments
- Leaving out Schedule CA (540NR), W-2s, 1099s, or credit forms, which slows processing
What Happens After You File
Once your Form 540NR is filed, the Franchise Tax Board reviews it for accuracy and completeness. Refunds are issued more quickly when you choose direct deposit; paper returns and paper checks take longer. If you owe tax, interest and penalties may apply from the original due date if you filed or paid late, even if you now file a complete return.
The FTB can offset your refund to pay other debts such as past-due taxes, child support, or other government obligations. If your return has mismatched withholding, incorrect filing requirements, or missing schedules, the FTB may send a notice asking for clarification or adjusting your return based on available information. Keeping copies of your filed return and supporting documents for at least four years helps if questions, audits, or the need to file a past due return or amended return arise later.
FAQs
Do I use Form 540 or Form 540NR if I moved to California mid-year?
If you moved into or out of California during 2018, you are a part-year resident and must use Form 540NR. You will report all income during your California residency plus California-source income while living elsewhere.
How does the California percentage affect my tax and credits?
The California percentage is your California taxable income divided by your total taxable income. Your computed tax is multiplied by this percentage to find the portion owed to California. Most exemption credits and many other credits are also multiplied by this percentage.
I worked remotely for a California employer but never entered the state. Is that California-source income?
In many cases, wages for services physically performed outside California are not California-source income, even if the employer is in California. However, if you performed work in the state, had California rental or business income, or other California-source income, you may still need to file a tax return using Form 540NR.
Can nonresidents claim the California Earned Income Tax Credit?
Yes, if you otherwise meet the CalEITC rules. For 2018, eligibility expanded to individuals age 18 or older with low earned income. Your credit will generally be prorated using the California percentage, but it can still reduce your income tax and potentially generate a refund.
What if I didn’t pay enough estimated tax during 2018?
You may owe an underpayment penalty if your withholding and estimated payments did not cover the required percentage of your 2018 tax. California’s safe harbor rules and estimated tax structure (30%–40%–0%–30% across the four installments) determine whether a penalty applies. The FTB may calculate the penalty for you, or you can use Form FTB 5805 to check it yourself.
