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 worked a temp job in NH for a few months but am a RI resident. One my NH W-2, they took out RI taxes, do I still need to file a non-resident for NH even though it will be zero. Thanks
Hi Denise,
You should still file a non-resident tax return for NH since you are liable for state taxes since you physically worked there. You will be asked to provide the time frame you worked there and the income earned. If need be, Rhode Island will issue you a credit for the tax paid to New Hampshire.
Sorry this might have already been answered but there are a lot of comments to weed through. I currently live in NC and travel for work (about 10 other states, many of which are for only about 1 week at a time). For the last several years I have completed tax returns for all of the states with the exception for FL which does not have an income tax so a NR form obviously doesn’t need to be completed. My question is why is that earned income then taxed by NC? At least for NC the procedure is to complete all out of state tax returns and the taxes paid to these states can be claimed as a credit. This however does not include and income earned in FL and while no taxes are paid there, the amount of tax owed to NC is calculated from total wages rather than state wages or % of wages earned in the state. Granted this in turn works out to paying the same amount of taxes as if all of my work was done in NC, it seems logical that the work done in FL should not be taxed by any state. Any light you can shed on this would be greatly appreciated.
Hi Will,
Although you are responsible for filing non-resident state tax returns for the states that require you to do so for conducting business, you are required to report your total income on your state resident tax return (and your federal tax return). When you file your taxes, you will receive a credit from your resident state for the taxes paid to non-resident states.
I live in Massachusetts but work in Connecticut. State taxes were not taken out of my pay however when I filed my taxes it says I’m getting a state return as well. Is that accurate or did I do something wrong?
Hi Stephanie,
It is difficult to determine whether or not you prepared your state return incorrectly. If you believe it was filed incorrectly, I strongly suggest contacting your tax preparer so that it will not affect your taxes in future years.
Hi, I live in NJ and worked in NY for all of 2015 (I got 2 W-2 forms from my employer). My NJ wages on one W-2 show $47,000 with no State income tax and the NY W-2 show $45,000 with about $2000 state income tax (I’ve read it’s ok for the NJ wages to be higher). So even though I paid 2000 to NY, my NJ state return is showing I’m liable/owed about $1000 to NJ, could this be correct? Also, my Federal W-2 Wages show $45,000, for my State W-2 Wages in the NJ State return should I report $47,000 or the difference between NJ and NY wages which is $2000? Thank you.
Hi Gio,
Taxes can get even more confusing when more than one state is involved. Let’s break it down. If you live in NJ but work in NY, you’ll have to file a resident return for New Jersey and a nonresident return for New York. New York requires you to pay taxes on income you earned working there, even though you live in New Jersey. You will report all of your income on your New Jersey return. However, you will get a credit for the taxes you paid to New York on your New Jersey return.
When an employer issues two W-2 forms because there are two states involved, you still want to enter only one W-2 when preparing your tax return. Otherwise, it may seem as though you are doubling your income. You’ll want to use your total income amount for the year and add the state and local lines from the second W-2 to the first one.
What if you live in Fla and earned income in TN. Does TN require you to file a non resident tax return?
Hi Susie,
Like Florida, Tennessee is an income tax-free state. You will only need to file a federal tax return for the year.