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’m moving to Texas from Illinois but will continue to work remotely for my Illinois based employer. Will I still need to pay Illinois state income taxes? If not how do I ensure my employee discontinues state income withholdings from my paycheck?
Thanks
Hi Tre,
Once you acquire Texas residency, you are no longer responsible for the Illinois tax since your company is only based there. You are only responsible for the taxes in the state where you physically reside as a resident and the state where you physically earn an income. To ensure that this change takes place, be sure to update your address information with your employer as soon as possible. You will need to complete a new W-4 form and they will be able to have this change go into effect immediately for the following pay period. For more information, check out our other article regarding working remotely from a different state than where your company is based.
I will be moving overseas next year. I will have 1099, W2, and rental income all from Pennsylvania sources but I will be a resident of a foreign country. Will I have to pay PA State tax?
Hi Joel,
Based on the information you have provided, you will still be liable for Pennsylvania state tax IF you meet the minimum filing requirements. You may even prefer to since your W-2 form will show the income amount that was withheld from PA throughout the course of the year.
Hi, I live and work in Florida. Recently my employer allowed me remote work and I am planning on stay with Family in California. Everything stays the same but if I decide to work remotely from Cali instead of Florida will I be liable to pay California State Income tax? If yes Why?
Thank you for your assistance!
Hi Namrata,
Unfortunately, you will be responsible for California tax by working remotely. The IRS makes it clear that taxpayers are responsible for taxes in the states where they physically reside as a resident and where they physically earn an income. When working and living in California, you satisfy both of these requirements.
Hi, my residency is in Alaska, but I moved to California for school. Then I found a job here in California. But I never changed my residency to California. When I file my taxes what do I do? Do I have to file a certain tax here in california or not? Because I get money from Alaska every year from the PFD. I’m new to all of this and not sure what to do.
Hi Jojo,
Since you moved to California mid-tax year, you will need to file a part-year resident state tax return. On this tax return, you will be asked to provide the amount of time you lived and worked in CA. One would typically need to also file a part year resident state return for the state they moved from, however Alaska is income-tax free so you are exempt from doing so.
I live in MA but working in RI. Do I put both RI and MA for state withholdings on my W4? Also Is there a way I can avoid getting double taxed?
Hi Calvin,
Since your primary residence is MA and you are physically earning an income in RI, you are responsible for taxes in both states. Some states have a reciprocity agreement instated with each other which allows taxpayers to only pay taxes to their resident state. Unfortunately, MA and RI do not have that agreement with each other.