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 there –
For the past two years I have worked and lived in Florida where there is no state income tax. The company I work for is a national company based in Illinois but had regional offices around the country – Florida being one of those. Now, I just took a new role on in the company where I will be working directly for the home office in Illinois, but I am still living in Florida 12 months a year…just visiting Illinois once a month for a couple of meetings. Will I now have to pay Illinois state income taxes even though my permanent residence is in a state without any state income tax? Thanks!
Hi Justin,
You have to pay state taxes for the state where you maintain your permanent residence and for every state in which you earn money. If you are both living and physically working in Florida, then you don’t have to file a state return (obviously, if FL had an income tax, you would have to file a FL return). It doesn’t matter where your company is located, it matters where you are physically doing the work, which in this case is FL. The only thing to look out for here is if IL is withholding state tax from your paychecks. If that is the case, you will have to file a return in order to get some of that money back.
Hello,
I recently started a 3 month internship in California for the summer and I live in North Carolina. I will be returning back home once the internship is over and was wondering how my taxes will be handle when I go back home. North Carolina taxes are not being taken out of my pay but California taxes are. How will this be handled?
Hi Freddie,
Since you are probably still a North Carolina resident, you will have to file a NC resident return at the end of the year, which will tax you on all of your income, including what you earned in California. But you will also have to file a nonresident CA return which will tax you just on the income you earned in CA. Both state returns will allow you to claim the taxes that have already been withheld, to ensure that you are not double taxed. CA will probably end up having to send some of this money to NC.
Hi Don,
I recently took a job in Missouri but live in Kansas. How much will my income will be taxed? Is there a way for me to figure that out? thanks.
Hi Joe,
You will be taxed as a resident in Kansas on all of your income. You will be taxed as a nonresident in Missouri only on the income that you earn there. You will be able to claim the taxes that you pay to the other state, however, so you won’t be double taxed. As far as how much exactly you will be taxed, it’s impossible to say until you actually go to do your taxes.
Hi I live in Westchester NY but work in Connecticut. My job doesn’t take out for NY state tax only Connecticut. When I file next year will I be double taxed. Or are they required to take out for NY state tax.
Hi Don,
No, you won’t be double taxed. When you go to file your New York state tax return, you’ll be able to claim taxes already paid to Connecticut through withholding. What this means basically is that the state of CT will have to pay NY state some money. So it’s fine that your employer only takes out CT taxes.
Hi,
Currently, both my spouse and I are earning money and living in New York.
I am on the verge to accept a new job in Houston.
If I accept this job, I will earn my money and live in Texas (except the weekends):
– Where should I pay my state income tax?
– Should I become a Texas resident?
– Should we file our Income Tax returns separatly?
– What should I ask and specify to my new Texan employer?
Thanks
Hi Max,
Where you pay state taxes will depend on where you’re a resident. If you remain a New York resident, you’ll have to pay NY state income tax on all of your income. Texas, however, has no income tax. So if you become a Texas resident, you will not have to file any state income tax at all (assuming that you earn 100% of your income in Texas. If you still earn any income in NY, you’ll have to pay NY taxes on that portion). In this respect, it may very well make sense for you to become a Texas resident. Transferring your residency to Texas would not necessarily be cause for filing separately from your spouse. Only a tax professional privy to the specifics of your situation could answer that. If you remain a resident of New York, you could ask your employer if they could deduct NY taxes.