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.
Greetings,
I live in NY but work in NJ. My company is taking out NY taxes which I understand is the higher tax rate of the two states. When I file at the end of the Year will I get a refund from NY and have to pay NJ, and if so will NJ penalize me for having paid them no income tax all year?
Hi Christopher,
You may want to check with your payroll department as to why they are not withholding NJ taxes. If they were supposed to be doing so, you will be responsible for the tax amount due when you complete your taxes. Unfortunately, in this situation, you are responsible for the state taxes where you reside and the state taxes where you earn an income.
II found the answer on another blog, which says to file in the non-resident state first, and then the resident state.
Hi,
My wife and I live in KS. My wife freelances as a language translator and travels to work in both KS and neighboring MO. She gets these assignments from companies based in both KS and MO but also NY, FL, OR, WI, MN (though she does not work there).
Should she pay MO income-tax on work performed in MO, regardless of the home state of the company issuing the 1099?
Does this mean that even for her clients based in our home-state of KS, who send her on assignment to both KS and MO, we should split the 1099 amount between KS and MO income tax?
Thanks!
companies
Hi Malcolm,
Although I’m sure an exciting job, your wife’s tax situation can seem a bit complicated.
If your wife has received 1099-MISC’s for multiple states, she will need to file a non-resident state return for each state that she has tax withheld. Every state has its own rules about how they tax individuals so she will also want to check on states with reciprocal agreements. Even if taxes are not owed, it may be necessary to file a state tax return to get refunds or to claim business losses that can be carried forward to future years. If she was not issued a 1099 for a certain state, she will not need to file a return. Keep in mind that she will need to file a resident state return as well for KS and all income earned (in all states) will be reported on this form.
Hi,
I lived and worked in New York until August. In August, I was relocated to Colorado for a temporary assignment and spent the next 6 months living in hotels. I had no permanent address during that time, as all of my items were stored in my vehicle and I moved between 20 different hotels. To make matters more complicated for me, my company accidentally accidentally relocated my taxes to California during that time period. In February of 2015, I moved back to NY. What should I put as my state of residence between August 2014 and Feb 2015. What should I put as my state of work (my company and managers are based out of NY, but I worked fully in CO)?
Thanks for your help!
Hi Lilia,
It is important to know that when it comes to taxes, it ultimately comes down to which states are reported on your W-2 form issued to you by your employer. Based on what you have stated above, you will most likely need to file a state resident return for New York and non-resident state tax returns for all states that you earned income in but never resided in (this includes Colorado). Be sure to double check your W-2 form before you complete your tax return. You will need to see where California falls into the mix. If you need help filing your return this year, you can create an account now with us at Rapidtax! We offer free customer support via phone and live chat so you won’t be left in the dark about how to file.
Greetings! I’ve lived in New Jersey and worked in New York for 10 years. I was under the mistaken impression that I didn’t have to file in New Jersey, only New York, and so over time I built up a tax liability of nearly $4,000 that the state of NJ is now demanding. Should I just pay it, or should I hire a tax professional to try to decrease the amount if that’s even possible? Thanks in advance.
Hi Matthew,
I’m sorry to hear about that. Considering that you were a New Jersey resident during that time, yes you should pay it. New Jersey’s finance department may be willing to set up a payment plan with you if you do not want to pay it all at once.
If using RapidTax to file your taxes, our application will ask you if you earned income from out of state sources, by indicating that you did in fact earn income from New York, our application will help you file both a resident and non-resident tax return. This will help you avoid complicated situations in the future.