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 moved from MN to LA in late October and I know I have to pay taxes in both states, but I also travel for work to various states. I have worked in OR, AR, TX, TN to name a few. Most of the states were only for 1 week in each state for a site visit, an audit or setting up/closing down a site. I am a national manager. Do I have to pay taxes to all of the other states I traveled to or just the two states I live in?
Hi Charlton,
You will only need to file taxes for these states if they are listed on your W2 form which you are issued by your employer before filing. If these states are listed in box 15, then you will need to file a non resident state return to receive a refund.
I am an IT consultant with an S Corp. Until recently I worked remotely in FL. My S Corp is registered there. I started a new contract, which requires me to be onsite in NYC. So far I’ve been living in a hotel and am considering getting a room or sublet in NJ or NY or possibly a different hotel, such as an extended stay-type. I’ve traveled home to FL about a week of each month (two months into the contract now), where I own a home, which is my primary residence. I don’t know how long the job will last, but it could be 6 months or longer. My contract is with a staffing firm, who listed a FL and PA address (it’s a national corp). The staffing firm is contracted with the end client, which is located in NYC. It seems I’ll have to file resident FL and nonresident NY. What about registering the S Corp in NY? Any other filings? Any other states? Thanks.
Hi Sue,
Since there is no income tax for the state of Florida, you will not need to file a state return. You will only need to file a nonresident state return for NY. For other state information, I suggest checking that state’s government website. Residence requirements are a bit different for each state.
I am an Ohio resident working remotely for a company based in West Virginia (I work physically in West Virginia 1-2 days per month). I was a resident of West Virginia when I started the job and a partial-year resident for the year ending December 31, 2014 (I became an Ohio resident in March 2014). My employer has only withheld West Virginia income tax. What should I do?
Hi SP,
I suggest taking a look at another article written on our blog. This is a more recent article which explains how to file taxes if you work remotely.
Hi Taxadvisor,
Here is my situation. I live in CT and work remotely for a company based in WI. The company has been deducting WI taxes from my paycheck. Do I need to file non-resident return in WI and a resident return in CT? Is there any way to claim refund from WI? Thanks for your time
Hi Dev,
I suggest taking a look at a more recent article on our blog that will answer your questions further. It is targeted to people who work remotely.
My daughter is moving to Hawaii with her husband who is active duty Navy. Her Virginia employer is considering having her work remotely from Hawaii either as an employee of the company or as an independent contractor. Would she be required to pay income tax in both states? If she goes the independent contractor route would it be best or her to set up an LLC in VA or Hawaii?
Hi Diane,
I suggest taking a look at a more recent article on our blog that will answer your questions.