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 live in new mexico but pay Arizona taxes as that is where my companies head quarters is. However, I worked 10 months overseas last year, where do I file taxes?
Hi Kyle,
In addition to your federal return, you will file a resident state return with New Mexico and a non resident state return with Arizona. You will report all income on federal and resident returns. You will report income from Arizona on your non resident return. You should receive a credit for the tax you paid all year to Arizona.
I am working in Mass for a company in Indiana my home is in Texas, do I have to file in Indiana as well?
Hi Kent,
You are not necessarily responsible for taxes in the state where your company is headquartered if you are not also physically working in that state. Based on what you have stated above, you are not liable for Indiana taxes. If your company is withholding taxes from your paychecks for Indiana taxes, then you will need to file a nonresident state tax return for Indiana to claim that income back. You can see if your company is withholding for Indiana by checking your pay stub.
In this situation, “I am working in Mass for a company in Indiana my home is in Texas, do I have to file in Indiana as well?” Will he have to pay non-resident tax in Mass?
The fact that the your company head office is located in Indiana does not require you to file an Indiana state return. You are only required to pay taxes to your resident state and the state where you earned your income. Since you resided in TX and there is no income tax in TX, you do not have to prepare a resident return. However, since your income was earned in MA, you will need to prepare a non-resident MA return.
I work in Nevada 2/3 of the year but reside in Kansas. What would be the best way for me to file my state taxes. Thank you ahead of time.
I live in Texas and work in Louisiana. Do i have to pay taxes in Louisiana?
Hi Lawrence,
Based on your comment above, you would be liable for state taxes in Louisiana. You are responsible in the state where you reside and the state where you physically work and earn an income. In your case, Texas has no income tax.
Hi Hailey,
Great to hear that our blog post could help you out! The form you are looking for an be found HERE. This is in pdf version which is able to be typed into.