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.
Hello,
For most of 2015 I lived in PA, but I was at college in Centre county from January – May and only lived at my “permanent address” in York County from June to August. I worked while I was in Centre county (state college) from Jan- April, but only had this source of income while I was in PA. Why do I have to pay taxes to York county if I only worked in Centre county?
Additionally, in August I moved to California for a job. How do I decide if I should be a part-year resident of these states or just file in PA and do a non-resident form for CA? I’m trying to decide if it is more beneficial tax-wise to keep my permanent address in PA, or switch to CA and become a resident since PA makes me file local and city taxes as well.
Thanks for your help!
Hi Patty,
Although you were attending college in Centre County, your ‘permanent’ residence is in York County. Although you weren’t working in York, the face that you are a permanent resident makes you liable for taxes there.
Being a state resident generally depends on your intent to stay in the state permanently and the amount of time you are living there. Since each state has different rules regarding residency, you can check the government website for CA and PA. If you are a resident of CA, then you will need to file a part-year resident return for both CA and PA for the initial year.
I am now a Florida resident employed with a national company and work from their Rhode Island office 5 1/2 months a year while I am there. I also work remotely for the same company from my Florida home 6 1/2 months per year. R I has a state income tax and Florida does not. Am I subject to paying it just for the 5 1/2 months I am physically in RI or for the full 12 months?
Steve
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Does tax advisor have a response to this question? Thanks
We are planning on becoming Arizona residents but keeping a summer place in Mn. My husband’s job will still be based in Mn and he will travel back and forth. Will this hurt us tax wise? Taxes in Mn are greater across the board. Our two children will be attending College in Az, we have decided to move there a few years earlier ( before retirement) than we had planned.
Hi Andrea,
Although you are planning to file a joint federal tax return, it may be most beneficial for you and your husband to file separate state tax returns. This is common in a situation like yours where a married couple will still file a joint federal and have joint responsibility but individual responsibility when it comes to state taxes. When you husband files a resident tax return for Arizona and a non-resident tax return for MN, he should be issued a tax credit to avoid double taxation.
Hi,
I am a computer consultant, who works at multiple states during one year period . My Employer is in NJ , but i live and work in MI.
If i understand correctly, i need to file resident taxes in MI and Non resident in NJ? But , i also read one of the comments, who said that a person doesnt need to file Employer’s state income taxes. My payroll runs in NJ but i dont work or live in NJ.
PLease kindly advice
Hi Patrick,
Generally speaking, you are responsible for state taxes where you physically live and physically work. In your case, that would be MI. This being said, take a look at your pay statements/stubs. These will report if your employer is withholding NJ taxes. If so, speak with your employer to see if this is a mistake on their part. In the even that this has happened, you will file a non-resident state tax return for NJ. You will be asked to report the income you earned while working there (in your case none) and how much was withheld (which you will report from your W-2). You should then be issued a state refund from NJ for the taxes that you payed to them through your paychecks.
I used to live and work in OK for 9 months of 2015. Moved to Louisiana in Nov 2015 and unemployed until recently (December 2015). I live in TX with my relatives but my family still lives in Louisiana. Do I need to have Louisiana state income tax taken out of my checks?
Thanks.
Hi Jerry,
Based on your situation, you only physically lived in Louisiana for about a month. It is important to know that each state has slightly different rules when it comes to residency. Generally speaking, each state considers someone as a resident if they are in that state for more than a temporary or transitory period of time and if he or she is domiciled or maintains an abode in the state and are “present” in the state for 183 days or more. I strongly advise you to double check with the state Department of Revenue for Louisiana and also Texas while you’re at it.