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.
Hi Tax Advisor: My primary residence is in Texas and my wife works in Texas. However, I work in Lousiana, and rent an apartment for temporary living in Lousiana during the week, and go back to Texas on weekends. is it consider Lousiana a non-residence state? or it is residence state since I rent an apartment? and can I deduct cost of travel (such as mileage or gas) as aprt of credit to earn income? Thank you so much
Hi Linh,
Each state has their own set of guidelines for residency. I suggest checking the Louisiana government website for a complete set of qualifications.
I have a question I’m hoping you’ll be able to answer. My parents moved out to Tennessee from California in September. I just came out 2 weeks ago and will be staying here until April or May to help them move in to the new house they just bought and also to experience living in a totally different state from California (because I was born and raised in California and have lived there all of my life). My goal is to get a job (a small, retail job) so I can earn some money while I’m here, then go to Ireland in April or May to visit my Mom’s family. But when I return from Ireland, I will be going back to California, will get a job there, and will possibly go back to school and get my bachelor’s degree. I will gladly pay California taxes on anything I earn here in Tennessee if that’s what it takes to retain my California residency. As far as I’m concerned, California is my home and I’m not leaving it permanently, just for under a year so I experience some different places while I still have the freedom to do so. Can I do this legally?
Hi McKenna,
You should not have a problem doing this. Before you file your tax return, you will receive a W-2 form from your employer(s). In box 15, the states that were withholding from will be listed. For each state listed, you will file a state tax return.
I live in TX but work for a tech company in NY (meaning I don’t even step foot in NY). Do I have to pay NY state income tax?
Hi Korben,
I suggest taking a look at a follow-up blog post on our website to provide you with a bit more insight to your specific situation.
Hello, I live in Nevada and work in California. I am single, head of household with no children. What number of exemptions should I claim on my W2 to break even on my taxes? (Not to pay or receive a return). When I lived in/worked in CA I would claim 1. Now the I live in Nevada I heard I could claim more exemptions.
Thanks,
J
Hi Jared,
The general rule is that the more allowances you claim, the less withholding you’ll have taken out of your paycheck. By following the directions on the Personal Allowances Worksheet of your W-4, you will calculate the maximum amount that you can claim. However, you can always claim less than that to ensure that enough will be withheld from each paycheck. If you claim zero, you’ll have the maximum amount taken out. If you claim a larger number, you’ll have less taken out. The absolute ideal scenario is to have your tax liability (or refund) at the end of the year be as close to zero as possible.
I suggest taking a look at the IRS Withholding Calculator. It only takes a few minutes to complete and will give you the most accurate amount of allowances to claim in order to reach that break-even point at the end of the tax year.
I have a question:
I work in CA and earn 100% of my income from CA, however I live in state of texas, and commute back and forth. this year, I would have spent more than 60% of my time outside of CA, and less than 40% in CA. Texas doesn’t have state income tax, but I have been paying state income tax to CA. Can I get back the state income tax that I have been paying to CA, since I have been in the state less than 50% of the time?
Thanks,
Since California has been withholding taxes from your paychecks, California will be listed on your W2 (which your employer will provide to you before filing taxes). You will then submit a state return for California and will more than likely receive a refund based on the information you have provided.