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 live and work in Oregon where I paid taxes married filling separately. My husband lives and works in California. We are together on weekends. How shall he file his taxes? Its all very complicated.
Hi Donald,
Yes, state and federal taxes can become complicated when multiple states are involved.
You and your husband can file a joint federal tax return but you’ll need to file separate state tax returns. You’ll file a state return to Oregon and you’re husband will be required to file a state return to California.
Luckily, you won’t have to dig around for the various tax forms. Create an account on RapidTax and we’ll help you through the filing process. Keep in mind, the RapidTax team is available by phone, chat or email to answer any questions you may have when filing.
thanks you people are great!!
Hi,
I am a permanent resident living in Ohio. My income comes from my sole proprietorship business that is registered in the Netherlands, has Dutch clients and a Dutch bank account, should I pay state income tax?
Thanks, Robert
Hi Robert,
Yes, you are required to file a resident Ohio tax return.
Also, you’ll want to keep in mind that you’ll be taxed on your foreign income when filing your federal tax return.
Best of luck!
Hello, my husband and I live in New Jersey and he commutes to Maryland everyday and works. Is there a reciprocal agreement? Someone told me that there was but my web research doesn’t find anything.
Hi Colleen,
Unfortunately, Maryland does not have a reciprocal agreement for New Jersey residents. Maryland only offers a reciprocal agreement to residents of Pennsylvania, Virginia, West Virginia and the District of Columbia.
Hello,
I work in NYC and have zero leases with my name on it. I am “living” here, well sleeping here year round. I want to buy a house in Florida where I am from and my parents still live there. I want to file my taxes as a resident of Florida so I can buy a house and claim homestead. What do I need to do at my job to make sure taxes are taken out appropriately? How will I file my taxes next year? Is this idea even possible and/or will it work?
Hi Beau,
It’s always best to be honest, especially when it comes to your tax situation. I wouldn’t mess around with your residency situation, especially considering the fact that you’re earning income from a New York source. Keep in mind that you’re considered a resident of the state you spend the most time in. With that said, if you spent more time in Florida than New York over the last year, you would be considered a Florida resident and would report your NY income on a NY non-resident tax return.
If you plan on using RapidTax to file your taxes, we’ll guide you through the filing process for both your federal and state taxes.
Best of luck buying your Florida home!
I am an insurance agent working out of my home in Florida since 2013. Prior to that I worked out of my home in NY 100% of the time but still go there for about 4 months. Practically all of my clients who I do business over the phone with are from NY. My 1099’s are from NY companies. Must I file a non resident return with NY and pay Federal and State income tax? Practically all of my business is transacted over the phone. Florida has no state tax and I don’t have many clients in Florida. All of my monies get direct deposited to a bank in Florida. Please help. Thank you.
Hi Nancy,
I’m sure sunny Florida is much warmer to work from than snowy New York! Unfortunately, you will be required to report and pay tax on any income you received from New York sources. When filing this non-resident return you will not need to report income you earned from other state sources, only income from New York. On your federal return, you will report all income you received from all sources.
This may seem complicated but the RapidTax application is very easy to use and straightforward. If you have any questions while entering your non-resident (or federal) income, don’t hesitate to contact the RapidTax team.
Enjoy the sunny Florida weather!