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 work from home in CA for a CA-based employer. If I move to NV which has no state income tax then my business mailing address will change to NV via my employer.
Will this release me from CA withholding and income taxes?
Hi Colin,
I suggest taking a look at a more recent article on our blog about working remotely. This article will be able to provide you with a bit more insight to your specific situation.
I understand the “live in one state and work in another” tax situation that many are posed with, but my situation is much more complex.
I work for a company that sends my to multiple states (customer sites) to perform a service. I have been working for them for nine years now as a Washington state resident. WA has no state income tax and because I am a resident I have not had to pay any state income tax regardless of what state I worked in. On November 1st I transferred to a different group to perform a different service at these same customer sites. The new group is based out of Minnesota but I do not live in Minnesota nor do I work in Minnesota, however my November paycheck has a Minnesota state income tax deduction on it. I did not Live, Work, or even set foot in Minnesota in the month of November, as a matter of fact I was “loaned out” to the Washington (state) office to finish up some work that needed to be completed. I live in Washignton state (where the sales tax its almost 9% to make up for the lack of income tax) and I am what is reffered to as a “Remote Employee” for this Minnesota division and only work outside the state of Washington when I am at a customer site. I may not even be in Minnesota for the entire year. Am I required to pay the Minnesota State Income Tax, and if so why?
Hi M Nelson,
I suggest taking a look at another blog article on our website that refers to working in a different state than you live. This article will offer a bit more insight on the subject at hand.
I also suggest speaking with your payroll department just incase this is an error on their part. If not, you will see that the end of the tax year on your W-2 Form (box 15) the states that withheld taxes from each of your paychecks. You will file state tax returns for each state listed on your W-2 (Box 15). This will ensure that you receive a refund for any taxes that were withheld in error throughout the year.
Hi Korben,
I live in Tennessee, My company is based in Alabama, I travel as a salesman through Arkansas, Mississippi, Georgia, Tennessee, and Kentucky. I currently file non-resident “exempt” income tax in Alabama, but I do not file anything else but Federal Income Tax anywhere else. Is this correct? I know Tennessee does not have a state income tax on anything but Interest and Dividends. Am I properly filing?
Hi Kelly,
Based on what you have stated above, you will need to either check your pay period statements or your W-2 that you’re employer issues in January. If there are taxes being withheld from any states, it will show on your statements or in Box 15 of your W-2. These are the states that you will need to file a non-resident state tax return for along with your federal tax return.
Good Evening-
Please help. My husband and I own a home in NY, drivers licenses, banking, voting etc all NY. All of 2014 we both physically worked in VA. I also have a part time consulting gig for a NY company which I can do anywhere. (only NY taxes come out of that check) My husband rented an apt. in VA, the lease and utilities are in his name nothing is in mine. We go home to NY almost every weekend and other times during the year. We consider ourselves NY residents, and plan on returning to NY full time in mid 2015. My company only takes out VA taxes, my husband’s takes out VA and NY. I have read VA residency requirements but am still unsure if I must file taxes as a resident of both NY and VA. Yes, we are “physically present” in VA Monday-Friday usually leaving Friday for NY. Dual residency sounds expense and I’m terrified how much this could cost us if we have to do that, making this adventure the stupidest thing we could have done. Should have just stayed on unemployment in NY. Your thoughts?
Hi Peggy,
Since each state has their own set of residency guidelines and you have already taken a look at Virginia’s, I would suggest contacting the government office directly and explaining your situation a bit more to them.
Based on what you have stated above, it sounds as if you would file a resident return for NY and a part year resident return for VA.
Hi there,
I live in California (resident), but my recruiter is in NYC.
I work in CA company which pays for my recruiter in NYC, who pays me. I don’t go to NY, I stay in CA.
On my paystub I see NY income tax, but I don’t see CA income tax.
How do I go about it when tax period starts?
thank you,
Alex
Hi Alex,
In your case, you’ll file two state tax returns; a resident return to the state you live in and a non-resident return to the state listed on your W-2 (the state your company is located in).
It all comes down to what is listed on your W-2 form. Any states listed in box 15 need to be filed as well as your resident state.