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 and lived from 4/1/15 – 2/15/16 in California. and 2/16/16 – 3/31/16 I worked in New York City. My annual bonus check is paid on 3/31. Since I was temporary renting in NY i got taxed NYC tax of extra $1,191. Is there any way around this? 1) I worked 90% of year in California, 2)This is a temporary stay like a long hotel stay.
Any information that you can provide would be great.
Hi Nick,
Unfortunately, NY is one of the toughest states when it comes to taxes. Unlike some other states, NY even taxes non-residents on the very day that they begin working in the state. This is why you were taxed for the time you lived in NYC.
My daughter lives, goes to school and works in Mississippi full time(since 2011). She still has her car registered in MD and a MD license. However she has not earned any income in MD since 2011. I do claim her as a dependent. Does she still need to file a MD return? If so does she file as a full year resident or a part year resident?
Hi Kim,
When it comes to being a resident for tax purposes, your license and registration are not a key factor in the determination. She will need to adhere to the guidelines for whether or not she needs to file a MD return, regardless of her driver’s license.
I work in Alaska but I live in Minnesota. My employer says they’re not obligated to take out minnesota state income tax out of my earnings. Is that correct?
Hi Dan,
Unfortunately, some companies will not withhold taxes from a different state since they are not obligated to do so. Since you are responsible for Minnesota tax as a resident of the state, you will need to file a resident state tax return along with your federal tax return.
Hi,
I think my situation is complicated. I lived in Illinois from January to June 2015 then move to New York in June and lived in New York for the rest of 2015. When I lived in Illinois I work in New York for three weeks in January and had some income. After I move to NY, I worked in New Jersey from July to December.
The question is that I made some income in NY as a non-resident, then after I became a NY resident I made no NY income. How can I file my state tax return for IL, NJ, and NY?
Hi Casey,
Based on the information you provided above, you’ll need to file three different state tax returns:
1. Illinois Part-year resident return
2. New York Part-Year resident return
3. New Jersey Non-resident return
When you complete these (or if you use a tax preparer), you will be asked for the income earned while PHYSICALLY(they don’t mention this) working or residing in the state. Once you report these time frames and income, the calculations will adjust accordingly. Since this situation can be confusing, feel free to give our tax team a call for more guidance.
Hi, I live in Illinois but work at an office located in Indiana for a company located in Ohio. Will I need to file in all three states? Thanks!
Hi Nicole,
You should only be held responsible for taxes in the state/s where you are a resident and where you physically work. You would only need to file a return for Ohio if your employer withheld taxes and you need to report that to claim it back as a refund. You’ll be able to see which state taxes are being withheld from your paychecks on your W-2 form and your paycheck statements/stubs each pay period.