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.
Hi. I am still a bit confused and need some help. I live in the state of Illinois worked two months in the state then took a job in Florida worked six months in Florida then came back and worked in Illinois. I paid Illinois state income tax for the two jobs in Illinois. But looking at my taxes I’m confused if the income I earned in Florida, I will need to pay state of Illinois income tax on?
Hi Mike,
You will first need to determine if you are/were a resident of Illinois. To do this, you can take a look at the Illinois government website HERE. If you are considered to be a resident of Illinois (even while working in FL), you will file a resident tax return.
I worked for a couple of months in Wisconsin but was downsized. I reside in North Carolina but was unable to find work in this state and therefore did not earn any money in NC and actually had to take money from my 401K to survive. Will I need to file taxes in both states even though I did not earn any money in NC?
Hi Tina,
You are responsible for taxes in the state where you are a resident and the state where you physically work and earn an income. In your case, as a resident of NC, you would most likely need to file a resident tax return.
An earlier answer has me second guessing myself.
I do online university teaching for colleges in Oregon and in Florida, but I work fulltime for a university in Missouri. Do I owe Oregon state income tax on the monies I earn from that university? Obviously, the salary I earned originated there, but I work in Missouri. (Florida has no state income tax.)
Hi Dan,
Generally speaking, taxpayers are responsible for taxes in the states where they are a permanent resident and where they are physically working to earn an income. Based on what you stated above, you are always physically working from Missouri. Working online for a company (or in your case, university) based in a different state is considered working remotely. You’re taxed as such.
I live in new york and work in vermont. I made about 34000 last year working in vermont. When i filed for my taxes why am i ending up oweing $400 for new york?
Hi Will,
As a taxpayer, you are responsible for taxes in your resident state and the state where you physically work and earn income. In your case this is New York and Vermont. In most cases, you will receive a credit from your resident state after filing and paying non-resident state taxes to the other state.
I live in Texas, but worked in Calif, I know I will have to pay Ca. State taxes.
However they are trying to tax my iRA I cash out in 2015 earned in Texas and tax my interested earn in Texas Bank.
Can they do this. If not can you refer me to info considering this
Hi John,
Under typical circumstances, a former state that you resided in cannot tax your retirement benefits. I strongly suggest double checking the address on file with your retirement provider. If this is not updated, that could be the reason that you are being taxed.