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 live in California but own a rental property in Illinois – do I need to file and income in IL too? even if I have a loss?
Thx
Hi Suzan,
Since you are renting out your property in Illinois, you should be reporting any income or loss amounts on your tax return(s). If you are preparing your taxes by yourself, this loss would be reported on a Schedule E. Otherwise, your tax preparer will know where to report this information.
Hello,
Thank you for the article, I have two questions regarding my scenario.
I’ll be working remotely for a company in Georgia while living in Pennsylvania. In this scenario, do I have to file a return and or pay any taxes to Georgia?
If I do have to pay taxes in Georgia, will I get that money back at the end of the year?
Thank you!
Hi Ro,
I am glad to hear that the article helped you out.
Typically you would not be responsible for Georgia state tax since you are not physically working or living in Georgia. Sometimes in situations like this, an employer will still withhold tax for whatever state they are located in. Other times this will not happen. You’ll be able to see on your pay statements which state tax is withheld. IF Georgia tax is withheld, then you will simply file a non-resident tax return along with your standard federal tax return and PA resident state tax return. This will allow you to be issued that money back in the form of either a tax credit or refund.
Hello! Wonderful article and it helped me understand a little bit about the different tax scenarios. I do have a question that I did not find on here. As the employer, do I need to provide my employees with a specific form that would cover them in this case? We (the employer) are located in TN, but we have a few employees from GA (we are located close to the border) that are going to start working here. One of them said that he “would like for GA to be taken out”, but I’m not sure what he means by that. As employers we do pay GA tax and are set up to do that but I’m unsure of what to do based on the employees standpoint. Any help would be greatly appreciated. Thanks in advanced!
Hi Rosie,
It’s great to hear that you found the article helpful!
For your situation, I suggest giving your payroll department a call. Withholding rules for different states can vary. Sometimes it is the employee responsibility while other times, the employer will need to submit a form for each employee. Your payroll department will be able to tell you the policy and what GA entails.
Hello,
Great article! I have two scenarios:
1) I have an employee who moved to FL in Nov. 2015 (where the company is located). He moved from AZ, but did not advise he was a FL resident until Feb. 2016. How should the employee file his returns?
2) We have multiple employees who reside in different states. For instance, Employee A resides in FL, but often travels back and forth to work in another location in NY. Employee B is a PA resident, and works mainly in the company headquarter in FL. Should Employee A & B both be paying taxes for PA & NY?
I’d love to hear your views.
Thanks,
Felicia
Hi Felicia,
I’m glad that the article was able to help you out and even brought you to ask some questions!
1. For this situation, neither an employee or employer can go back in time (so to speak) and adjust a withholding amount. On your end, you should update the address information for future pay periods. On the employee’s end, (s)he will need to file a part-year resident return for AZ (nothing for FL since there is no income tax) and report the amount of time (s)he resided in the state and the income earned while living in Arizona. The tax will adjust accordingly. Also, if they are using an accountant/tax preparer, they will know how to handle this situation as it is more common than you would think.
2. A taxpayer is generally responsible for state tax in the state where they permanently reside and the state where they physically work and earn an income. It is important to understand from a taxpayer’s perspective that each state has different guidelines. According to the PA guidelines when taxing non-residents, they stated the following:
As a nonresident, you pay PA income tax on compensation for services performed in Pennsylvania. Your PA employer should report and withhold PA tax from your PA-taxable compensation. If your employer does not report or incorrectly reports your PA taxable compensation, you must file PA Schedule NRH to apportion compensation and any allowable employee business expenses.
As far as NY goes, an employee is taxed on the very day that they begin work in NY so those employees would be responsible for NY tax as well.
I recently moved to Arizona from Texas and working remotely for a company in Texas. I am a permanent resident of Texas and own a home there. Am I liable to file state income tax to Arizona? I will be traveling back to the office every other month.
Hi Lillian,
You are liable for income taxes in the state(s) where you physically work and your resident state. In your case, you would be responsible for Arizona taxes because you are physically earning an income in the state. For more information on working remotely specifically, we have another article HERE. The real question comes down to whether or not you are a resident of Arizona. If you are not, then you will file a non-resident return for AZ. If you are considered a resident for tax purposes, then you will file an AZ part year resident tax return. You can find out your residency status HERE.