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 have a friend that is a resident of Colorado, but her income comes from Wyoming, Is she required to report that income and do a Colorado Tax Return every year.
Hi Lance,
Yes, if she is a resident of Colorado, she must file a resident CO return in which she reports and pays tax on all of her income, wherever it was earned.
I live in Texas (which has no state tax) but am employed by a company in New York. To complicate matters, my entire contract will be fulfilled in Africa. Do I pay state tax in any state?
Hi Deborah,
I don’t think you will end up owing any state tax. Even though your company is based there, you shouldn’t have to pay any New York state tax because a) you were not a NY resident and b) you did not physically earn your income in NY. Ordinarily, you might still owe taxes in your home state when you work abroad, but because Texas has no state income tax, you don’t owe anything there. Still, you might want to have a tax professional look at your individual situation to make sure.
Also, just want to add that my friend who is a resident of California as well, has listed her Washington home address as her resident address and the address of the building in which we work as her work address, so a California withholding tax is not deducted from her paycheck. Is this acceptable? If I do this, will I still pay the California withholding taxes when I file my tax return?
I am a permanent resident of California but I am working in Washington state for the summer. I provided my home California address to my employer before changing my address in their files to Washington, but for each paycheck I am still paying a California Withholding Tax. Should I be paying a california withholding tax? Will I get this money back when I file my tax returns, or what does this mean for when I file my tax returns? Thank you!
Hi Elly,
All of this depends on whether you intend to go back and live in California in the Fall after your work in Washington is over. If you will in fact go back to CA, and will remain a permanent CA resident, it is best for CA taxes to be withheld from your paycheck. This is because CA residents must file a resident return and pay taxes on all of their income, no matter what state it was earned in. If you don’t have that tax withheld from your paycheck now, you’ll just have to pay the state later. On the other hand, if you don’t intend to return to CA as a permanent resident, then you don’t need to withhold CA tax.
Hi, I live and work in NJ but my paycheck is running from NC. So how do i need to file tax for NJ and how to get back money from NC state.
Hi Sam,
You will need to file a return in New Jersey as a resident. On this return you will have to pay tax all of your income. You will also have to file a nonresident return in NC. Under normal circumstances you would not have to, but it sounds like tax has been withheld. In this case you will have to file as nonresident in order to get that tax back. You might try talking to your payroll department to see if there is a way for them not to withhold NC taxes or to withhold NJ taxes instead.