Need to file state taxes when you live and work in different states?
Most people in the U.S. live and work in the same state, which makes state taxes pretty easy to understand – you pay taxes to the state where you live and work.
But what if you live in one state and work in another? Do you pay taxes to the state where you live? Where you earn an income? Both?!
You need to pay taxes to both. Most likely you will end up having to file a resident return in the state where you live and a nonresident return in the state where you work.
Resident return
Generally you need to file a resident return in the state where you are a permanent resident. This state has the right to tax ALL of your income, wherever it was earned.
Nonresident return
After you file your resident return in your home state, you then need to go about filing a nonresident return in every other state where you earned money. A nonresident return only taxes you on the money you earned in that state. What often happens is that you withhold some income for each state tax.
Let’s take a real-world example.
Let’s say you live in New Jersey and commute to your NYC job Monday through Friday. Come tax time, you would need to file a resident return in NJ (reporting all of your income) and a nonresident return in NY (reporting only the income you earned in NY).
Worried about being double-taxed? Don’t be. You will have an opportunity to claim a credit for taxes paid to the nonresident state. They will then divide whatever has been withheld between them and the state whose tax liability was not exactly met will either give you a refund or a tax bill.
States without an income tax
There’s always an exception to the rule. In this case, there are seven exceptions. The five states with no income tax and the two states that only tax interest and dividends are the exclusions:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
- Tennessee
- New Hampshire
If you live in one of these states, you don’t need to file a resident return (unless you live in TN or NH and have interest and dividends income). But if you work in a state that does have an income tax you have to file a nonresident return in that state.
The same holds true when the situation is reversed. If you live in a state with an income tax, you must file a resident return there. But if you work in a state without an income tax, you don’t have to worry about filing a nonresident return.
Sound complicated? There’s a reason for that: it is. But let’s not stress because here’s all you really need to know. For this to work, every state needs to make agreements with every other state covering the income they could both theoretically tax. These agreements are structured to generate a minimum amount of paperwork and special cases: instead of having some workers who lives in a state but doesn’t pay taxes, the states have someone who lives in the state and pays taxes like everyone else — but gets a special tax credit at the end of the year.
In a situation like this, it’s often best to talk to your payroll department about how to proceed. In places with many out-of-state commuters (like New York, New Jersey, and Connecticut, as well as cities near state borders), they will have the details on how each state treats out-of-state income.
Even if you have to file multiple state tax returns you can take care of them right here on RapidTax.
I will be working in Georgia at the end of the year but we were looking for houses in Northern Florida. Like many have mentioned Florida has no state income tax. Will this benefit, hurt, or neither my taxes for this year?
Hi Chris,
It’s impossible to say exactly how this move would impact your tax situation, but as long as you are still working in Georgia, you will still have to pay taxes on all of your Georgia income. And if all of your income is earned in GA, and none in Florida, it will likely not provide a very large tax benefit.
I work in delaware and live in pennsylvania. My employer is deducting pennsylvania state tax only, but should I be paying deleware state tax too or is there some type of aggrement between pennsylvania and delaware in which I only have to pay state tax in the state I live in. Is this correct and how should I proceed so I am not oweing delaware tax at the end of the year? Thanks.
Hi Robert,
Yes, you will have to file a nonresident return in Delaware and pay taxes on the income that you earn in the state. However, it’s okay that your employer is only taking out Pennsylvania state taxes. When you go to file your returns next spring, you will be able to claim the taxes you paid to PA on your DE state return. This will ensure that you aren’t double taxed and will let the states work out among themselves which one gets how much.
Hello;
I will be moving to Florida in Jan 2013- will still be working for my NY company from home, how do my taxes work? when I file do I file NY taxes?
do I still file out of NY and will I still get a Federal and NY state check ? (I have three dependents) I’m clueless – thanks
Hi Kelvia,
You have to pay two types of state taxes a) resident taxes on all your income in the state where you’re an official resident and b) nonresident taxes in any other state on the money you earn in that state. In your case, everything depends on whether you are moving permanently to FL – whether you are becoming a FL resident, in other words. If that is the case, you won’t have to file state taxes at all. Since FL has no income tax and you are earning all your money there (regardless of where the company is based) you won’t owe state income taxes! Note: you may have to file a part-year return in New York, depending on how early in January you move and how much money you make there. If you are not changing your official residency to FL, then you will have to file a NY resident return and NY will tax all your income. So from a tax standpoint, it probably makes sense for you to become a FL resident.
I have a similar situation, Ilive in TX which does not have state income tax. I am a sales person who covers the midwest as a territory. My company is based in NY. I am in NY about 8 days a year for meetings. I do not “earn” money in NY….I am an employee of a NY company. Do I have to pay NY taxes.
Hi Chris,
Yes, if your company is based on New York, you will need to file a non-resident New York state tax return. You’ll report and pay tax on the New York sourced income only. If you are filing on RapidTax, we will help you through the process. As always, our tax team is standing by if you need any help along the way.
Best of luck in your sales job! Thanks for visiting the RapidTax blog Chris!
hi i am from utah i got a j ob working in new york but i am staying in ct the company im working for are taking out ny taxes only. do i have to pay taxes in utah or ct. i just dont want to get in trouble thanks ken
Hi Ken,
You have to file taxes as a resident in the state where you live (the state in which you maintain your official residency) and as a nonresident in any state in which you earn money. If you have maintained your official residency in Utah, you have to pay Utah tax on all of your income, but not Connecticut tax (though CT treats as a resident anyone who maintained a permanent residence in the state for the entire year and spent more than 183 days there). If you officially moved, you will have to file a part-year resident return in both states. As for New York, you will definitely have to file as a NY nonresident. Your employer is right to take out only NY taxes. When you file in your resident state, you will be able to claim the taxes you paid to NY through withholding so you won’t get double taxed.
I will be living in TX (20 days a month) and work in iowa 10 days a month,Tx as you know has no state income tax
So would I still have to pay IA tax on the income I earn In IA even though I dont live or have a residence there(I stay in a hotel on my assignment)
Hi Al,
You are correct. You will have to file a nonresident return in Iowa and pay Iowa state tax on the money that you earn there.