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 just moved to NC mid/late Jan 2016. I work in VA. Do I need to complete a W4 for NC or is the W4 for only the state you work in? I changed my address for my w2 and payroll, however never completed a W4 for NC. When I look at my witholdings information it shows the following:
Taxes
Federal
Primary State VA
Secondary State VA
Why would VA show up as both a Primary and Secondary State?
Hi Shawn,
A secondary state is a state that’s different from your primary work location state. This change most likely occurred when you moved from VA to NC. Your W-4 should be updated with the correct address as soon as possible if you have not done so already.
Hello:
My wife lives in goes to school and lives in a city in Ohio. I work and live in a city of Oklahoma. We file our taxes married filing jointly. Both states first tax on our total income and then deduct taxes based on percentage of income made in different states. The city in Ohio taxes a the rate of a flat 2% and so there is no need to file a return on city tax. Now the city in Ohio has asked for a tax on my income from Oklahoma saying that Ohio is my domicile because my wife lives there. As a fact, my wife and I both live separately, and are residents of two different states. It doesn’t make sense to me to pay to Ohio from the income I have from Oklahoma even though I am not a Ohio resident.
Any suggestion will be greatly appreciated. Thanks a lot.
Hi Cyclic,
This situation is common and can seem pretty overwhelming. Many taxpayers in this situation will file a joint federal tax return and separate state returns (still filing as married). This holds you each responsible for your own state instead of being taxed on a combined income/Adjust Gross Income from both states.
Hi I’m thinking about taking a job in TN (Moving from NYC). I would be moving there for at least a year and renting out my apartment in NYC.
If I am living and working in TN but own a place in NYC renting it out, do I still have to file in both states?
Hi Helen,
If you choose to do this, you may not be considered a NY resident for tax purposes. However, you will most definitely need to report your rental income earned on your NY rental property.
I work abroad for the government. However in 2015, I went to CA for 51 days on vacation. I am a nonresident there. Then I worked in Virginia for five months. For the time I was not in California or Virginia (i.e. abroad) do I have to claim that income in Virginia? I usuallly benefit from the safe harbor clause in CA but I read that is limited to 45 days.
Hi Jerzy,
Since each state has different rules when it comes to how they tax non-residents, I have included the rules for California and the guidelines for Virginia. This should help you to determine if you will need to file for these states or not.
Thanks for the great article.
I live in NY but travel weekly to Wisconsin to work. I understand that NY will give me a credit on the non-resident tax that I paid to Wisconsin, but should I be filling out withholding paperwork in a particular manner, or just as usual and the company will automatically withhold for each state appropriately? I’m thinking I’ll end up overpaying by having each state withhold during the year, and then get a tax credit refund.
Thanks
Hi Michael,
Before making any final decisions, I suggest speaking with your payroll department. Typically, your employer will withhold based on your address. However, there have been cases where an employer will continue to withhold income based on the state they are HQ-ed in and disregard the state where the actual employee is working from. If this is the case for you, you’ll need to file a non-resident state tax return in order to be issued a refund back for that income that was withheld.