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 am a resident of Ohio. During the year I have worked both in Ohio and Florida. My company withholds all the state tax based on ohio. Does it right? Do I have pay state tax in ohio for the Income I earned in Florida.
Hi Debo,
Being that Florida is one of the few states without any income tax, you will not need to file a state return for Florida. Along with your federal return, you will just need to submit an Ohio state tax return for the income you’ve earned throughout the year there.
We have employees who work in one state and live another and sometimes the lived in state is taxing and the worked in state is non taxing and vice versa depends on each individual case. What I was wondering is if and when they exercise stock should they be taxed in the state they work or only the state they live or both?
So if I live in TX and work in OK, I was thinking I should not be taxed since TX is non taxing and when I exercise those stocks I am home not working.
Hi,
I am planning to move to california but will travel to Baltimore,MD weekly for couple days to work.
My residence will be in california but will work 2 days in MD office and 3 days at my home office..
I will be paying for my travel expenses? can i deduct that?
second will i pay california tax or MD?
will i be double taxed?
thanks,
Sam
Hi Sam,
To begin with the good news – you CAN (and should) deduct most of the travel expenses, assuming that your employer is not covering those for you. I also suggest looking into deducting the costs for your home office as well. As far as what state you will pay taxes to, you will most likely need to file a resident state tax return for California and a non resident state tax return for Maryland. Your payroll department should also be able to provide you with some insight about how they withhold taxes in your situation.
Feel free to also check out our blog article about working remotely from home. This article will offer a bit more insight on how you will be taxed and how you should file come tax time.
I am a resident of Michigan but, work in Texas. Do I have my employer take out taxes for Michigan? I don’t want to owe Michigan taxes.
Hi there,
Unfortunately, you’ll be forced to pay Michigan taxes on your income earned from all state sources considering that you’re a resident of Michigan. With that said, you should speak with your employer about taking out taxes for Michigan. If not, you could potentially be slammed with a tax bill when filing state taxes.
I have a question about state tax. I’m a full time Missouri resident. But in 2014, I worked a full time job in MO until July 4th and then moved to Hawaii for the remainder of the year (until Dec 31, 2014). While in Hawaii I worked part time for couple months and earned $800 in gross wages and was deducted $4.53 for HI state income tax. How do I claim and pay taxes on both of these states?
Hi Galina,
Since you lived in both states throughout the tax year, you will need to determine if you were also considered a resident for both as well. If you were a considered a resident of both, then you will need to file a part-year resident state return for Hawaii and a part-year resident state return for Missouri. If you were only a resident for Missouri, then you will need to file a resident state return for Missouri and a non-resident state return for Hawaii. To determine if you were considered a resident of each state for the amount of time that you lived in both, you can check on the state government websites for each.
I hope this helped!