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 am responsible for payroll at my job. I just hired a guy who lives in Washington State (no individual income tax) and works in Virginia 1 week a month (sometimes for 2 weeks). Will he need to pay taxes in VA??
Hi Vanessa,
Yes, if this employee works in Virginia, he will need to file a nonresident return for all the money he earns in VA. There are filing thresholds, however, that depend on his Virginia adjusted gross income. Refer to the Virginia Department of Taxation for more information.
Hi I live in Washington state and received a check while in new York. I will return to Washington in September and live at home until early June. What will the tax situation be like for me in April. Will I be taxed by both states. I know Washington doesn’t have a income tax. Thank you
Aaron west.
Hi Aaron,
You are correct that Washington has no individual income tax. So you don’t need to worry about them. But you will need to pay tax in New York if you either live there as a permanent resident, or earn money there. It’s a little unclear from your description, but it sounds like you will in fact receive money while in NY. Most likely you will have to file taxes as a NY nonresident, which means you’ll pay tax only on the income you earn in NY.
Hey Guys, I will be working in ND on a drilling rig for 2 weeks at a time and staying on the rig location while I am working. I will be moving back to Mi from Wy in about a week. I’m assuming that I will be taxed both in Mi and ND since I will have no income in Mi from this job, and a 6 figure income in ND from it. Will I have to file a non resident return for ND at the end of this year? Thanks
Hi Phil,
First off, you have to file a return for every state of which you are a permanent resident. That means, if you are moving from Wyoming to Michigan, you will be a part-year resident of both Wyoming and Michigan. Wyoming has no income tax, so you don’t have to file there. But MI does. It doesn’t matter whether your income was actually earned in MI or not. If you change your permanent residency to MI, you will have to file a part-year resident return in MI that taxes you on all your income.
Secondly, you have to file a nonresident return for every state in which you earn income. In this case that would be North Dakota. So yes, you most likely will have to file a nonresident ND return that taxes you only on the income you receive in ND.
Good morning,
I live in New Jersey and work for a Carlifornia based company, am I going to be double taxed by both NJ and CA? Thank you!
Hi Pat,
You will definitely be taxed in New Jersey, but you should only be taxed in California if you are physically working there. If you are working remotely from NJ, you shouldn’t have to file a CA return. The only thing to watch out for here is to make sure no CA tax is being withheld from your paychecks. In this case you will have to file a CA return to get that money back.
Good Afternoon,
I still have permanent residency in Florida, which does not have state tax and recently started working in Michigan. Will I need to withhold state taxes for Michigan? Also, since I am not a resident of Michigan will I need to withhold City taxes? Thanks you!
Hi Kaila,
Yes, you will need to pay Michigan taxes as a nonresident. This means that Michigan will tax you on all the income you earn in Michigan. So it makes sense to have Michigan taxes withheld from your paycheck. As for city taxes, you’ll have to check with whatever city you’re working in.