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 recently started a job in CT. I live in MA. CT is taking out income tax. Will I be paying state income tax in both states? If so it sounds like I will be taxed twice for the same income. Can I deduct or get a credit with MA for the taxes I already paid CT?
Hi Phil,
Your resident state will tax all of your income. As long as you are a full-year resident, you will be issued a credit for taxes paid to your non-resident state on your resident state tax return. This will avoid double taxation.
Good morning, I live in Georgia, but getting offer to go work in Massachusetts. I’ll move there and probably get an apartment (in MA), but would like to keep my house here in GA. What am I looking at for cost and how bad will the tax be?
Thank you
Niki
Hi Niki,
Each state has their own set of guidelines when it comes to residency. This is typically based on time spent in the state and intent for where your permanent residence is. In your case, it sounds like Georgia is and will continue to be your permanent residence for tax purposes. I advise that you check with both state government offices to ensure that the amount of time you will be living in both states means that you are a resident of both. The reason being is that when filing a resident state return, ALL of your earned income is taxed. This could get expensive. Take a look at another article we have HERE that will help you in determining how to file once you are sure that you are a resident of both states.
Hi,
I work in Seattle,while my residence is in san Francisco Ca. Tax is not being deducted at the moment from my salary. Both my employer and contract location is in WA state. Please advise on the tax implication and the timelines for filing taxes
Hi Atul,
You are responsible for tax in the state where you physically work and earn an income and the state where you reside. In your situation, Washington is income-tax free so you are not liable for tax there. You will, however, need to pay tax to California. If you aren’t having taxes withheld, then you will need to file a resident state tax return for California and pay the taxes owed.
I have a permanent residence in Maryland only on my license. I live in Hawaii and work in Hawaii. Do I have to pay Maryland taxes?
Hi Lisa,
Unfortunately, if you have a permanent place of domicile in Maryland then you are a resident and are liable for state residency taxes.
At the moment I’m unemployed. I have been looking for telecommuting positions which would allow me the flexibility to work from my VA residence and upon occasion to work from NJ so I can take care of business for my elderly father on off-hours. Recently I had an interview with a VA based company who said if I took the job I could not telecommute from NJ at all. My assumption is that they are requiring me to work from VA for tax reasons. My residence will always be in VA with no plan to move to NJ. I would only be telecommuting from NJ when needed and possibly around the holiday weeks. As a new (possibly part-time) employee, I will not receive vacation time or pay. In today’s world of technology they show individuals taking care of business from vacation points like a beach. Can I really not telecommute other than from my residence? I didn’t ask but I’m sure they would even have gone further by saying I would have to stay within my city or county as well. Where is the flexibility to do business whenever and wherever possible? This seems a little ridiculous.
Hi Rebecca,
This is a bit strange seeing as the position you have applied for is alright with you telecommuting in the first place. The downside that they may be focusing on is that if you telecommute from more than two states, they would need to keep track of that and withhold tax from NJ (when you are working from there) and then from VA (when you are working from there). This may be an extra cost on their payroll for one employee. I would suggest speaking with them about it again and seeing if that is the issue that they are hung up on.