I live and work in MD, but I file in FL (military spouse). I' a MB, not a nanny, so I am an employee of a business, not a domestic employee.

My employers had two options:
1) I could file a W4 that said I was a military spouse and did not owe MD state taxes. Then, they wouldn't withold anything, and it was on me to pay my state taxes.
2) They withhold MD taxes, and I file in April for a refund.

OP, you shouldn't have to do anything for her. She should be able to file a document with you so that you don't have to do anything for CA, and then she just files in MD.

Thanks for everyone's responses. I was able to get in touch with the MD taxation dept to get a few facts:

-I don't need to withhold for a domestic employee in a private residence in MD
source: http://taxes.marylandtaxes.com/Business_Taxes/Business_Tax_Types/Income_Tax/Employer_Withholding/Withholding_Information/Withholding_for_Domestic_Employees.shtml

-You can file with the state & set up a withholding account for the employee.

-Intuit Payroll Household Employee for MD state can do what I need, but they might have to upgrade to the enhanced payroll to do the multi-state thing (since there are forms to file in CA & MD)

Hope this helps others out there.

She can, actually. A law was passed a few years ago that let's the spouse have the same tax residency as the military member. Here's info from CA - http://www.edd.ca.gov/payroll_taxes/FAQ_-_Military_Spouses_Residency_Relief_Act.htm#WhatIsThisNewAct

I would think a payroll service company would be current on this sort of thing, but I don't know any specific one.

Anonymous wrote:I recently hired a military spouse to work at our home in CA. She lives in CA. She wants to declare MD as her state of residency & have us file her taxes in MD. Does anyone know how to handle this or have a recommendation on an online payroll service that understands & can figure this one out? The complexity is that neither I nor she has a MD address, and MD taxes by county. I know there's some brilliant folks out there who know the answer to this one.

I don't think she can do that. I'm was a military spouse until this year and while my DH filed taxes in MD (where he has an actual address to use) I had to file in the state we lived in. Even when the person in the military files for taxes in another state they still have to have an address for where they lived for at least a month.

I recently hired a military spouse to work at our home in CA. She lives in CA. She wants to declare MD as her state of residency & have us file her taxes in MD. Does anyone know how to handle this or have a recommendation on an online payroll service that understands & can figure this one out? The complexity is that neither I nor she has a MD address, and MD taxes by county. I know there's some brilliant folks out there who know the answer to this one.