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 slightly different issue.
Currently wife and I live in Arizona. I have just received offer for 2 year contract in Texas that is great.
Likely i will either live in a studio apt or a long stay motel while wife remains in Arizona.
Having a studio apt or long stay motel make me a resident in Texas ? I know Texas has no state
income tax but do i have to still pay Arizona income Tax while working in Texas for two years ?
Hi Bob,
Congratulations on the new job offer!
Residency rules tend to vary from state to state so I suggest checking with your state’s Department of Revenue for more detailed information. That being said, there are general guidelines that you can refer to.
You are a state resident if that is where your main home is located for the entire tax year. It’s the state where you intend to live when you return.
You are a state nonresident if you:
1. temporarily live there with no intention of making it your home, or
2. did not live there during the tax year and received income from that state because you worked there, received income from sources located in that state, or received income from sources locates int hat state as a beneficiary of an estate or trust.
I’m currently a resident of Georgia but work in California. I read in the above article that it says I won’t be taxed twice, but I just want to make sure that this is still true in 2016 since the article was written years ago.
All I have to do is file a resident tax return in Georgia and a non resident tax return in California, then they will divide it all and not tax me twice? Just want to make sure I’m understanding it all!
Thank you!
Hi Kristen,
This is correct. Once you file your state tax returns, you should be issued a credit from your resident state to cover the tax that you paid to your nonresident state over the year.
I live in TX for the last several years then moved to Hawaii last November to start a farming job. I wish to maintain my TX residency because my children are attending school there. Must I file tax for both states? I had to take HI driver license and surrendered the one from TX. Will this effects my residency?
Hi Kevin,
When it comes to tax law, your driver’s license has no influence on your state residency. Your state residency for tax purposes has more to do with the time you live in that state during the tax year and your intent to continue living there. Each state tends to differ slightly in their residency guidelines so it is best for you to double check the specifics with your state’s Department of Revenue. Texas does not have tax on income, however you may need to file a state return for Hawaii.
I currently live in WA and the company I work for is in WA. I currently don’t pay any State Income Tax and have no need to file a state tax return. However, I am interested in taking a new position. The head quarters is based in Southern California but I get to work from a Home Office in WA. Will I get the money back that gets withheld from my paycheck? For Example lets say I make a 100 k a year, and California withholds 9,000 for the year, do I get that money back/ should they be withholding anything at all? I am trying to determine if it is worth it to take a new job and what my effective take home pay will be.
Hi Z,
Congratulations on the job offer!
When you work remotely for a company, you are not responsible for the state taxes where the headquarters is located. In your situation, working from Washington would keep you safe from paying California state taxes. When it comes to your pay statement, you’ll either see that they are withholding no state tax at all OR that they are withholding California state taxes. If they are not withholding state taxes, then file as you normally would. If they are, you will need to file a California non-resident state tax return along with your federal return in order to claim that money back as a state-issued refund.
I’m a Florida resident and about to start working remotely for a company based in Kentucky. I have never been to Kentucky and will not travel there for the job. (All work is done by computer from my Florida home). Am I subject to Kentucky income tax? Or is it withheld and I can get a full refund at tax time?
Thank you in advance.
Hi Jennifer,
As long as you are physically working and residing in Florida, you will not be subject to Kentucky state income tax just because your company headquarters in located there. Most likely, one of two things will happen.
1. Your employer will not withhold state tax from your paychecks, knowing that you are working and living in Florida, or
2. Your employer will withhold Kentucky state income taxes from your paychecks. In this case, you will report that income withheld on a non-resident Kentucky state tax return and be refunded the money.