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 if I am a Permanent resident of ny, but take a
Job at a company based out of florida ( that I will
Have to travel to every once and a
While) and I give them my ny address for my paystub will They automatically take New York taxes out or do I have to Contact payroll to
Tell them this. I guess the real question here is do
They determine what states taxes to deduct based off of your address on your paystub?
Hi Sash,
Taxpayers are responsible for taxes in the state where they physically reside and physically earn an income. In your situation, you would be liable for NY income taxes since you are living there and physically working there (although remotely for a FL company). Based on what you mentioned above, the time you will be spending actually working in Florida is minimal. If you decide to move to Florida, then you would no longer be liable for NY taxes.
Hi,
I work in Philadelphia, PA and Im thinking of buying a house in NJ. Will I end up paying more in state tax than if I buy the house in PA. Any idea about the city tax (Non-resident city tax in Philadelphia is 3.49%), is there a city tax in NJ if Im already paying the Phila city tax? Thanks!
Hi Ed,
In some cases, neighboring states have what is known as a reciprocal agreement with each other. This basically means that if you live in one state and work in another state, you will only be liable for your resident state’s tax. Fortunately for you, NY and PA have a reciprocal agreement intact. It states that if you are a NJ resident, you do not have to pay PA income taxes on your wages. You would just need to submit exemption Form REV-420 to your employer.
Good luck with the new home!
Hi,
I live in California and work for company in PA. How should I withhold taxes? Thanks!
Hi Iris,
You are responsible for taxes in the state where you physically earn an income and the state where you physically reside. Based on what you have stated above, that state is California. If you notice on your pay slips that your employer is withholding PA tax as well but you do not travel or physically work in PA, then you should speak with your payroll department to clear up the mistake. If this is occurring, come tax time, you will file a PA non-resident state tax return to report the taxes withheld in order to be issued a refund back.
what if you live in Washington but are temporarily living in your other house in Montana? What if you work from home but are temporarily staying in your other house that has state tax?
Hi Rachel,
Each state has their own guidelines on this. Non-residents who travel to Montana for business purposes are subject to state tax from the first day they arrive. Therefore, you are responsible for Montana state tax as long as you are physically earning an income there.
Hello,
my residence is in NC, I work in DC and currently staying in Maryland (I put my temporary MD address down on the form). Do I need to pay both taxes in NC & MD? or should I only have to pay in MD since I’m not working in NC. If I do have to pay taxes in both states do I need to fill out both a NC and MD state tax withholding forms?
Hi Julie,
Each state has a separate set of guidelines when it comes to tax withholding for non-residents. According to the Maryland state government website, “Nonresidents who work in Maryland or derive income from a Maryland source are subject to the appropriate Maryland income tax rate for their income level, as well as a special nonresident tax rate of 1.25%.”
That being said, you will need to complete a tax return for federal, NC resident tax return and MD non-resident tax return. There are no forms to complete prior to filing in order to adjust your withholding amount (similar to the W-4 form). The state auto-adjusts that for you.