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 live in California although spent a full year working at sea on a cruise ship. Are there any exceptions to paying taxes in yuur “home” state when you only live there two months out of the year? I did not pay rent or set foot in California 10 months out of the year.
D
Hi Dave,
When it comes to whether you are a state resident for tax purposes, each state has their own set of guidelines. I suggest checking the California government website for a bit more insight.
Question,
I am living in Florida, but my permanent residence is Michigan. I want to work as a travel physical therapist. A portion of my hourly rate is supposed to NOT be taxed here in Florida as a travel therapist. Will Michigan take taxes out when Florida doesn’t? Kind of complicated it seems…
Thanks so much!
Hi Laurel,
A new post was written on our blog that may provide you with a bit more insight.
Ok, here’s my situtation.. I’ve worked in California but my resident is in Utah, from mid Jan to end of Nov. I fly home once a month for 4 to 5 days. I’m assuming I have to pay and file income tax on both state, one for non-resident in California and one for resident in Utah, is that correct? Currently, they are only taxing me in Utah and not in California. What should I claim in the process of living in California, rent, gas, food (per diem) as business expense?
Hi Del,
This is correct, you will need to file both state returns. I suggest speaking to your payroll department since California is your resident state. You will definitely need to file a state return for California.
As far as deductions go, I suggest taking a look at the IRS website for a complete list.
I have a future employee that “owns” a house in Texas, currently has had an apartment in Virginia for at lease several months.We may be hiring her for a position in DC that would last 3-6 months. Would she need to complete a DC Non-Resident and a VA Resident withholding forms? She says she should be able to claim Texas, which doesn’t have withholding.
Hi Vicky,
Her situation seems to be a bit more intricate. However, from what you have stated above, she will most likely need to file a part-year resident tax return for VA and a non-resident tax return for working in DC. She is correct when saying that she doesn’t need a resident tax return for Texas since they do not have an income tax. Therefore, she would need to complete the forms that correspond to each state where she will be filing a state return.
Can you help ? My wife does not work, and lives in CA more than 182 days a year.
I have taken a job in GA, paid in GA. When there, I live in a property we own.
I could spend 182 days in either place.
What is my exposure to double state taxation?
Could I change residency to GA to my advantage even if my wife is in CA?
Hi Malcolm,
When it comes to being a state resident, each state has their own set of guidelines that are each slightly different. I suggest taking a look at the government website pages for both California and Georgia to see their specific residency rules.