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.
Hello,
I live in Massachusetts and work in Rhode Island. My employer is only having RI tax withheld from my check. He claims that I will have a credit from RI and it will offset the MA taxes. Is this true? Should I be withholding RI and MA taxes?
Hi Ashley,
You are responsible for both state taxes. Although the two states in question do not have a reciprocal agreement, according the the Massachusetts state website,
“Massachusetts residents and part-year residents are allowed a credit for taxes due to any other jurisdiction. The credit is available only on income reported and taxed on a Massachusetts return.”
If a person has full time residency in Virginia, but has an apartment in Alabama and works out of an office in Alabama – must they have state tax for Alabama deducted from their paycheck, then file returns in both states (resident and non-resident respectively)? Also are they then entitled to a credit in Virginia for the taxes paid to Alabama, and if so is there a particular form they would complete?
Hi Burt,
You are responsible for taxes in the state where you are a resident and the state where you are physically working and earning an income. Based on the information you provided above, you would be responsible for both Virginia tax and Alabama tax. You would only receive a credit if the two states have a reciprocal agreement between them. In this case, Alabama and Virginia do not have one instated.
I live in Texas but working in Ft. Polk, Louisiana. I have a home and family in Texas but 5-6 hours away from Louisiana. If I take my RV into Louisiana and work there for 4 days but each weekend (Thursday night to Sunday Night or early Monday morning) I go back home to my family, do I have to pay Louisiana State taxes. Or can I move my RV just on the Texas side but drive over 48 min. to keep from paying Louisiana State tax. Just trying to figure out what I can do to not pay that Louisiana State tax the right way and no way breaking the law.
Hi Kenny,
Since you work and physically earn an income in Louisiana, you will need to pay taxes there. You won’t need to for Texas since it is an income tax-free state. Whether you drive your RV into the state or not, you will need to file a non-resident state tax return for Louisiana.
Hi I had a question. So I live in Pennsylvania currently, and work here. I also have a second job that I do from my home, with the base of the company being located in New Jersey. I have yet to change my drivers license to a PA one and I’m not sure how filling my taxes would work. Can I file in both states? And does that affect either of my employers in terms of the tax fees they have to pay? (I know that my NJ employer is currently only set up for NJ and NY taxes, not PA).
Hi LB,
It can get a little confusing when two states are involved. We’ve actually expanded this article to a second article that explains how to file your taxes when you work from home in a different state than your company is based. The same general rules apply where you need to file a return for the state you earn an income and the state in which you reside. However, there are exceptions and other facts that you should be aware of as well. If you have further questions after checking out the article, feel free to reach out to us via phone, livechat or email.
Hi,
I live in Florida and my Employer is in NJ. I had withholding tax taken out of my pay. Am I entitled to a refund from NJ.
Hi Ken,
You may be issued a refund from New Jersey. When you file your federal tax return, you will need to also file a non-resident state tax return for New Jersey. This will have you report the income that you “earned” in New Jersey and the amount withheld from your paycheck. Once this is submitted, you most likely will receive a refund from the state. In the meantime, I would check with your employer that this mistake be taken care of so that you can receive the correct amount each pay period.
Thank you…