How to Claim the Other State Tax Credit in California

To claim the Other State Tax Credit in California, complete Schedule S, attach it to your Form 540 (or Form 540NR if you’re a part-year resident or a qualifying nonresident), and include a full copy of the income tax return you filed with the other state. The credit reduces your California tax by the smaller of two amounts: the net income tax you actually paid to the other state, or the share of your California tax attributable to the income both states taxed.¹

Who Can Claim It

The credit is built for full-year California residents. California taxes residents on income from every source, so when another state also taxes income you earned there, the OSTC is what prevents both states from fully taxing the same dollars. The income the other state taxed has to have a source within that state under California’s sourcing rules.²

Part-year residents can claim it, but only for double-taxed income earned during the months they were California residents. Anything earned before you moved in or after you moved out falls outside the credit.

Nonresidents generally can’t claim the OSTC on a California return. There’s a narrow exception: residents of Arizona, Guam, Oregon, or Virginia who paid tax to their home jurisdiction on income California also taxed can claim the credit on Form 540NR.³ Nonresidents from anywhere else need to seek relief on their own state’s return.

Which Other State Taxes Actually Qualify

Not every state qualifies, and this is the first place a credit can fall apart. If the other state already gives its own residents a credit for California taxes paid, California won’t allow the OSTC for income taxed by that state. This is the reverse credit rule.² Arizona and Oregon are the common examples: California residents cannot claim the OSTC for income those states taxed, because relief is handled on the Arizona or Oregon return instead.⁴

The FTB publishes the full eligible-jurisdiction list in each year’s Schedule S instructions, and several jurisdictions qualify only for specific taxes: the District of Columbia only for its unincorporated business tax (and its income tax for dual residents), New Hampshire only for its business profits tax, and Tennessee only for its excise tax.³ States without an income tax, such as Texas, Florida, Nevada, and Washington, don’t appear because there’s no tax to credit.

U.S. territories are eligible. Puerto Rico, American Samoa, Guam, and the U.S. Virgin Islands all count when they’ve imposed a net income tax on income California also taxed.³ Foreign countries are never eligible; foreign taxes may support a federal foreign tax credit but not the OSTC.

Certain taxes don’t count even when paid to an eligible jurisdiction:⁵

City and county income taxes paid to a local government.
Any tax paid to a foreign country.
Alternative minimum tax or similar preference tax imposed by the other state.²
Taxes not based on net income, including gross income taxes, net passive income taxes, and built-in gains taxes.

Which Income Counts

The clearest case is wages you earned physically working in another state while living in California. Business income from an out-of-state operation, rental income from out-of-state property, and partnership or S corporation income sourced to another state also qualify when the other state imposes a net income tax on them.

Intangible income is where taxpayers get tripped up. California sources dividends, interest, and most capital gains to the taxpayer’s state of residence, so as a California resident that income is California-source. Unless the other state actually taxed the same intangible income (unusual when you don’t live there), there’s no double taxation and nothing to credit.⁶

Running the Numbers on Schedule S

The credit is capped at the lower of two figures. Schedule S calculates both and takes the smaller one.¹

In Part I, you list each item of income taxed by both states and enter the amount California taxed and the amount the other state taxed for each. Those totals flow into Part II.⁵

Part II runs the comparison. The California tax limit is your California net tax (Form 540, line 48, before the OSTC and any PTE elective tax credit) multiplied by the ratio of double-taxed income to your total California adjusted gross income. That prorates California’s tax to the slice of income the other state also taxed.² The other figure is simply the income tax you actually paid the other state, net of any credits on that state’s return.⁵

An example makes it concrete. You’re a California resident with $100,000 of California AGI and $5,000 of California net tax. You worked briefly in another state, earning $20,000 in wages there, and paid $1,500 in tax to that state. The California tax limit is $5,000 × ($20,000 ÷ $100,000) = $1,000. Since $1,000 is less than the $1,500 paid to the other state, your OSTC is $1,000. You don’t recover the full $1,500. The credit only offsets California’s share of tax on that income.

If more than one state taxed your income, fill out a separate Schedule S for each. The FTB reviews the sourcing math for each jurisdiction on its own.⁵

One adjustment applies if you received a California Pass-Through Entity elective tax credit: when computing the California tax figure in Part II, you add back the PTE credit as if it hadn’t reduced your California tax. Skipping this shrinks the California tax base in the proration and cuts your OSTC below what you’re entitled to. The 2025 Schedule S instructions handle this on Line 2.⁵⁷

What to File and Attach

Put the final Schedule S credit amount on the appropriate line of your Form 540 or 540NR. The OSTC is nonrefundable, so it can zero out your California tax but won’t generate a refund on its own.⁵

Attach a complete copy of the tax return you filed with the other state. This is the single most important piece of documentation. The FTB uses it to verify the income and tax you reported to that state, and returns filed without it are among the quickest to have the credit disallowed. If you’re claiming credits for taxes paid to more than one state, attach each state’s return with its own Schedule S.⁴

Keep proof of payment on hand as well, such as canceled checks, electronic payment confirmations, or bank statements. The FTB can ask for it separately.

Because Schedule S needs the other state’s return attached, file the other state’s return first or in parallel. If that isn’t feasible before California’s due date, extend your California return. The other state’s tax doesn’t have to be paid in the same calendar year, only tied to the same income. If you realize after the fact that you should have claimed the credit, you can file a claim for refund within one year of paying the other state’s tax or within California’s general statute of limitations, whichever is later.⁵

If the Other State Later Refunds Your Tax

If the other state refunds any of the tax you used to compute your OSTC, whether from an amended return, an audit, or a correction, your original credit was too large. You need to tell the FTB.⁵

File an amended California return (Form 540 or 540NR with the amended return box checked) using a revised Schedule S that reflects the lower other-state tax. Attach Schedule X, mark the credit adjustment box, and briefly describe the change.⁸ Other states typically share refund data with California, so leaving this alone tends to produce penalties and interest rather than a quiet outcome.

1
Franchise Tax Board. California Schedule S – Other State Tax Credit
2
California Legislative Information. California Revenue and Taxation Code RTC 18001
3
Franchise Tax Board. 2024 Instructions for Schedule S Other State Tax Credit
4
Franchise Tax Board. Other State Tax Credit
5
Franchise Tax Board. 2025 Instructions for Schedule S Other State Tax Credit
6
Franchise Tax Board. Taxation of Nonresidents and Individuals Who Change Residency
7
Franchise Tax Board. Pass-Through Entity Elective Tax
8
Franchise Tax Board. California Schedule X – California Explanation of Amended Return Changes