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, I’m a resident of NH, but looking at taking a job in VT. We’ve been told VT can tax my husband’s income, even though he has residency in NH with me, and works in NV. Is this true? What are the tax rules surrounding VT’s ability to tax income? I understand they would tax MY earned income since I would be drawing a paycheck within VT, but can they tax my husband’s income when he doesn’t work in VT, and when neither of us is a VT resident? Thank you!
Hi Paige,
When you are married and file a joint return, you open the door to many financial benefits on one hand. On the other hand, filing a joint return also means that both spouses are responsible for the combined income listed on the tax return. This is what I believe your source of information was referring to.
That being said, it does not mean that your husband will have both state taxes withheld from his paychecks (or vice versa on your own paychecks). It means that you and your husband will be responsible for the same amount come tax time. This is one of the most common reasons why many spouses that commute to separate states for work will file a joint federal return and separate state returns.
In 3 weeks I will be working in Colorado and living with a friend. My family is staying behind in California and will move out to Colorado some time in the summer or once our house sells. Since I will ” technically ” be living in Colorado, but will not have a “”permanent ” address how should I handle my state taxes?
Hi Mike,
The first thing you need to do is decide what your “permanent” address (or domicile) is.
A person can have only one domicile. In general, domicile is defined as the place intended to be the permanent home. It is the place a person returns to after a vacation, business assignment, educational leave or military assignment. A domicile does not change until a person can demonstrate abandonment of the domicile and establishment of a new permanent domicile. This is demonstrated with actions such as changing your driver’s license, voter registration, etc.
With the provided information, it seems as though your domicile would continue to be California until you sell your house in Colorado and purchase a new residence in California.
Wow, this is all too confusing!
Please give me some insight into my situation:
I live in Virginia. For most all of 2014 I worked weekly up on Long Island, NY (I’d come home for the weekends). My company withheld all my normal Virginia taxes as they have done every year. My company also paid taxes on a quarterly basis to New York.
I attempted to figure out my taxes this weekend and am not too confident I did it right.
I normally get a Federal refund… no change for this year I’m not concerned about that.
I attempted to figure out the New York state taxes. My company paid New York quarterly during 2014. If I figured it out correctly, I’m going to get a refund from New York for excess tax withholdings. In the filing process, I apportioned the amount of annual earnings between New York and Virginia accordingly. About 4/5ths was earned while onsite in New York. The remaining was earned in Virginia.
I then filed against Virginia. I used that same apportionment even though my company held out taxes for Virginia for 2014 as if I worked there the entire year. The results of my filing in Virginia became a significant refund from the state… almost 4/5ths of the amount that had been paid throughout the year. This concerns me because combined, the New York and Virginia refunds I calculated nearly doubled my prior year’s Federal and State refunds.
Does this make sense?
Hi JSC,
When it comes to estimating quarterly refund amounts, each state varies slightly. I suggest taking a look at the NYS government website page addressing how to calculate this amount correctly.
If a CA resident works in HI on a job – does he pay CA state taxes or HI state taxes…or both?
Hi Tricia,
Generally, one is responsible for taxes in the state where they are a resident and the state in which they physically earn an income.
I will be moving/living in Florida the end of Dec 2015 from Virginia and working from home (telecommuting) in Florida starting Jan 2016 for a Virginia company. When tax time comes around (following year), will I only be required to file in Florida as a resident? Also, will my employer still take out Virginia state taxes or once I change my address to Florida they will stop?
Hi Farrah,
I suggest taking a look at a more recent article on our blog about working remotely. This should answer your questions.