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 used to work and live in CA till October and now work in Chicago but live in AZ. So how should I file returns.
Hi Chandra,
For this tax year, you will need to file a part-year tax return for California. You will also need to file a part-year tax return for Arizona and a non-resident tax return for Illinois. In future years, assuming that you will continue to live in AZ and work in IL, you will just need to file a resident tax return for AZ and a non-resident tax return for IL. These state returns will be in addition to filing your federal tax return.
I live in Seattle. I will be working in California. I will commute every week for the job staying in California 4 nights/week. My permanent residence will always be Seattle.
Will taxes be taken out of my paycheck automatically? Or will I need to file a non-resident tax return in California and compute the taxes myself?
Hi Trisha,
I strongly advise that you speak with your payroll department. As long as they are aware of your living and commuting situation, they will be able to withhold state taxes automatically. This will be based on the information they have on file and have reported for you.
Complicated situation warning. I am a seasonal worker and also do contract work with an s corp I established. Currently I am a WA resident, I own land there but have not worked there recently though I still use it as my mailing address, have a WA license and registration. I did some seasonal work in Oregon (3 months) and also some independent contract work in CA (4 months). I paid non-resident state taxes to CA and OR, nothing to WA since it does not have state tax. My current living and working pattern is that I live and sometimes work in OR for about 8 months and work in CA for about 4 months. A majority of my income comes from CA. Am I required to switch my residency to OR since I spend most of my time in OR or to CA since I make most of my money their or can I still keep my WA residency since I own land there? Complicated!
Hi Lisa,
State residency varies from state to state and I highly suggest contacting the state Department of Revenue for both California and Oregon. However, a state will generally define a resident as an individual who is in that state for more than a temporary or transitory purpose. To most states, a person’s ‘domicile’ is the place where his or her permanent home is to which he or she intends to return to after being absent from that state for a period of time. It is typical for most states to determine a resident based on whether he or she is domiciled or maintains a place of abode in that state and are ‘present’ in that state for 183 days or more.
Florida resident working remotely for a new york company. I think I understand from reading other’s posts that I would be required to pay ny state taxes and then file a non resident state return for ny. What percentage of the taxes taken out will they keep?
Hi Amanda,
If you are a Florida resident and work remotely for a company in New York, you are not subject to NY state taxes. You are only responsible for state taxes in the state where you reside and where you physically earn your income. In your case, Florida is income-tax free. If you see on your pay statements that your employer is withholding NY taxes, then you can file a NY nonresident tax return to claim the tax withheld back. Keep in mind that if you travel to NY to conduct business, then you may be subject to NY state taxes but only for the duration of your visit.
My wife and kids lives in Vermont and I work in NY during the week and travel back home to VT for the weekends. Essentially I spend 5 nights in a rental studio and 2 days back at home in VT. What address should be listed on my paychecks and my W4? My VT primary residence or my rental studio in NY?
Hi Zsolt,
Keep in mind that the address listed on your W-4 is the one that will be reflected on your paychecks and W-2. This address will determine where your state withholdings are coming from. Seeing as you are living and working in NY for the majority of the year, you’ll want to put the NY address on your W4 form. Otherwise, additional taxes may apply.
Thank you for your reply. I understand that I spend a bit over the 183 days limit in NY, but all my banking, home mortgage, my house, driver’s license all indicate a VT residency. My wife also works and lives in VT with our children. We file married jointly returns. For federal tax purposes it does not matter, but for state tax purposes I think it does what my primary residency is. I think I need to file as VT resident and file a non-resident return for NY. However if the W-2 comes with a NY address does that automatically indicate that I am NY resident?
Thank you