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 am a permanent resident in Vermont and work full time in CT. I rent a room in a house and stay in CT Mon through Friday and come home for the weekend . The tax issue is pretty straight forward. However I would like to rent an apartment in New York State and commute during the week to my job in CT but keep my house in Vermont where my family lives. Would I have to pay income tax in New York? Thank you.
Hi Walter,
If the address provided to the IRS is for NY then you will be responsible for taxes there.
I live in Texas and work remotely from home for a company in California as a 1009 contractor. I occasionally fly to California to work for the client in their office. Do I have to file a non-resident return for the money earned while physically in California?
Hi Amie,
I suggest taking a look at a more recent article on our blog about working remotely and filing based on certain situations.
Hello, just wanted to say great site, and your help is invaluable you are offering. I have a few questions.
I have had a few big changes in the past year and this might be a little confusing. I am working in Massachusetts, but living in Connecticut. I previously lived in Rhode Island and last year I lived in both states. I also got divorced last year and bought a house with my brother (in Connecticut). On my newest pay stub I see I am getting state taxes taken out for Mass & CT now. Previously, I was only getting taxed in Mass and not RI, when I lived there and only rented.
Question – Am I getting taxed in CT now because I am now a home owner and does this seem right getting taxed from both states whereas I wasn’t before? Should I be able to get the CT taxes back when I file since I don’t work there? Also, as far as the divorce, does that effect filing for part of the year since I was technically married for the majority of the year? Thanks for your help!
Hi Jim,
To answer your first question, you will be taxed in the state where you physically earn an income and the state where you reside.
In regards to your second question, you will file with the status that you were on the last day of the year. There is no such thing as a part year filing status.
I live in MA and work full time, but I also worked over the summer of 2011 in NY. I filed in 2012 (resident MA, nonresident NY), but NY took a year to finally let me know they wanted more information. According to my calculations, NY owes me a significant amount, but they have now filed a document demanding additional taxes, including taxes on my MA income. I believe it is incorrect, but I don’t know exactly how to respond to this (which I need to do within about 10 days). I think they have double taxed me.
Also, why would I owe anything to NY if I’m a non-resident? Shouldn’t I get pretty much all the taxes I already paid back? It seems like taxation without representation, since I don’t live or vote in NY.
Should I hire an expert?
Thanks much.
Hi Sheba,
I wouldn’t jump to hiring an expert as of yet. However, I do suggest contacting the IRS directly to go over the information you have received. If you cannot seem to get a live person on the phone, you can always call your local IRS office.
I see a lot of similar questions on here, but none of them appear to address my specific situation. I live and work (from home) in Louisiana. My company is located in New Jersey. For much of 2014, my company withheld both Louisiana and New Jersey state taxes (they recently corrected this to only withhold LA taxes going forward). I know that I must file as a Louisiana resident, but what do I need to file to have the NJ taxes refunded to me since these were withheld in error?
Hi GF,
You will file a non-resident state return for NJ to claim those taxes back.