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.
My son worked summer 2015 in TN. We live in PA. There were no state taxes taken out for the work done in TN. Does my son have to pay PA state tax on the amount earned from TN?
Hi Glenn,
Since your son is a PA resident, he will need to file a resident PA state tax return. He will report all income earned on this tax return. He will also need to file a non-resident TN state tax return. He will report only income earned in TN on this tax return. He will be taxed accordingly based on income earned and where.
Hi,
I live in Washington and work for a company based out of Oregon, but I worked the whole year in Alaska. On my W-2 it shows that Oregon State taxes were taken out. Since I didn’t physically work in Oregon at all, will all of the tax be refunded?
Hi Nick,
That is correct. You will need to file a non-resident state return for Oregon and report that you earned zero income there but make sure to report the amount that was withheld from Oregon for taxes. Be sure to speak with your employer so that this can be updated for future years. You can complete your federal and state tax returns online with us and feel free to give our tax team a call if you have any trouble at all!
I am a Virginia resident but work in Tennessee in the summer. Should I pay income tax to Virginia for the salary earned in Tennessee?
Hi Ray,
You will not need to file a TN state tax return since it is an income tax-free state. However, when you file a resident state tax return for Virginia, you will report all income earned, regardless of the state you earned it in.
I work in California but i live in Nevada. If I file a Non resident return will I get some of the California State taxes back?
Hi Toni,
If you live and work in two different income taxing states, then your resident state will typically issue you a credit so that you are not (as most would say) ‘double-taxed’. In your case, you are living in an income tax-free state and working in California. You will not be filing a resident tax return since Nevada does not require it and a credit will not be issued.
I live in NYS but work on the outer continental shelf, in the Gulf of Mexico, on a foreign flagged vessel. My company is based in Houston Texas. Even though my primary residence is New York state I am physically in the state less than 6 months a year. I earn no money in NY or any other state.
Am I required to pay state income tax? I do not work in NYS or any other state. I work on the outer continental shelf which is Federal land. To my knowledge a state a has not right to tax earning on the outer continental shelf.
Am I required to pay NYS income tax?
Hi Michael,
Owning a home and not living in it for most of the year can make filing state taxes tricky. According to NY state, you are considered a resident for tax purposes if:
1. Your domicile is New York State, OR
2. Your domicile is not New York State but you maintain a permanent place of abode in New York State for more than 11 months of the year and spend 184 days or more in NY during the tax year.
To avoid confusion, your domicile is considered to be:
1. The place you intend to have as your permanent home
2. There your permanent home is located
3. The place you intend to return to after being away (as on vacations, business trips/assignments, school, or military)
Based on what you have stated is true of your tax situation, you would be responsible for NYS taxes since you are considered a resident of the state.