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 live in Graniteville, SC and work there, but my resident is still Georgia by paper. what will I have to do.
Hi Que,
When moving from one state to another, you’ll want to contact your local DMV. This is the initial step in relocating. There, you will be able to update the information for your ID card(s), license, voter registration, etc. To update your information with the IRS, you will just file your tax return with the updated address. This will auto update your information on file based on your SSN.
I live in Florida, and a portion of my income is paid from a Florida based company, and a portion is paid from a New York based company. I was issued a W-2 from each company. New York income tax was withheld from the portion earned in New York. I filed a New York state income tax return for the income earned from the New York company. I recently received a tax warrant from New York. They claim I owe taxes to New York based on my total income. I filed and paid taxes on all income received from New York. Can this be true?
Hi Bill,
I suggest contacting the state office for NY via the telephone number listed on the tax warrant you were issued. Since you are dealing with two states, one without income tax, it may just be a mistake. You filed your return as you should have based on what you stated above. When you speak with someone, just explain the situation.
Hi,
I live in Missouri but worked in Kansas last year. My employer took taxes out for Kansas. Can these be deducted from my Missouri taxes?
Hi Isaac,
Although it seems as though you are being double taxed, you won’t be. You will need to file a resident state tax return for Missouri and a non-resident state tax return for Kansas. Your resident state will issue a credit for most or all of the taxes paid to Kansas.
I live in Michigan but work as a seaonal, temporary employee out of state in Idaho. Should both Idaho and Michigan state taxes be withheld from my paychecks while working in Idaho?
Also, it looks like I will have to file a state tax return for Michigan, reporting all of my income in and out of state, and a separate non-resident tax return for Idaho with only my Idaho earnings, is this correct?
Hi Justin,
You are liable for state taxes in the state where you live/reside and the state where you physically work and earn an income. This explains why your employer is withholding taxes for both Idaho and Michigan. When you file your tax return, you will file a resident Michigan state tax return (reporting all income earned throughout the year) and a non-resident Idaho state tax return which reports income earned in Idaho. Since your employer is withholding state taxes correctly from your income earned, you will see these amounts on the W-2 form you receive from your employer for the year.
Thank you. Does this mean I am being double taxed on state witholdings in the end? Will Michigan allow me to claim a credit for the taxes paid to Idaho?
Hi,
I hope you will have an answer for my question too.
I live in NC, but got a job with a consulting company based in Atlanta, GA, however I work and will work all the time for a client company in SC.
So, what state tax should be withdrawn from my check – SC, NC or GA?
And then in what states I will need to file a state tax return?
Currently my employer (which is in GA) is withdrawing NC state tax – I think it is not correct.
Thank you.
Victor
Based on other questions/answers, I think I will need to file NC state return as resident and SC state return as non-resident. I don’t think I will need to file GA state tax return because I physically don’t work there, it is just my employer’s headquarter there.
And I guess I will need to have some documentation from my employer that I worked physycally in SC.
Would someone give me more input on this?
Thanks
Victor
Hi Victor,
Since you are a resident of North Carolina, you are responsible for paying taxes there. However, you are also responsible for taxes in the state where you physically work. In your case, this will be South Carolina. You will file a resident state return for North Carolina and a non-resident state return for South Carolina. Once you file your tax return, you will have the opportunity to claim a credit from your resident state for the tax paid to the non-resident state.
Thanks so much.
What kind of proof should I have from my employer that I worked in SC? My employer is in Atlanta, GA and does not have any offices in SC.
Thank you
Victor