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.
In year 2016 I lived in 3 states, my wife earned in FL and OH, while I earned in AR. When filing for my state taxes in AR, do I need to show our collective income from all the states? I did this for OH online and it has taken into account our collective income for all the year from all the states.
If you are filing a joint part year return, your income and your spouse’s income will be allocated to the state where the income was earned based on your period of residency. Rapidtax simplifies the preparation of part year returns. Click here to get started today.
My son goes to school and works in Utah, but he is a resident of Pennsylvania. This year his employer did not take any taxes out of his paycheck (in error), but starting next year they will. He is filing a 1040EZ this year. I’m assuming he has to file a PA 40 and pay PA state income tax. Does he have to file a non-resident return in Utah?
He would have to file a non-resident return in Utah if the employer determines that his income was earned in Utah and the employer reports the income to Utah. This can be determined by what state shows in Box 15-20 of his W-2 statement.
Both myself and my wife have lived in NJ for 22 years. She has worked in PA and Philadelphia never NJ. NJ and PA have a reciprocal agreement that we do not pay any personal income tax to PA, but only to NJ. The problem is that we have been paying both states personal income tax for at least 10 years We have changed accounts several times because they have not applied this to our taxes. Do we file a Rev-419 EX form for all the years we have paid income taxes to PA, or a PA-40 form. I would like to know how many years I can go back, and if the forms are correct before I go back to my new account.
Be advised, the form “Rev-419 EX” is not a form you file with your tax return. The form “Rev-419 EX” is a form you complete for your employer so they don’t withhold taxes from PA but NJ only (double tax). Since the double taxation already occurred, there is no purpose in completing this form for past tax years, but you may complete the form with your employer moving forward so that they don’t double tax you in the future. Please consult with your employer/payroll department for more information.
Ideally you would file a Resident NJ and a Non-Resident PA. On your resident NJ return, a Resident Credit for taxes paid to PA would be figured to offset the double taxation.
Hello,
We have a Window Fashion business that we started in Dec 2015, in NJ. The business sells in NJ and New York City. We are registered as a Foreign Business Entity in NY. For 2016, we paid both NJ and NYS Sales Tax for sales made in each state.
However, for the State Income Tax, do we need to pay NY State taxes as well as NJ state Taxes?
Would appreciate any help.
Thanks
Trevor
While state taxation can get a confusing, the bottom line is that you will always end up paying state tax unless you live in a tax-free state and work in another tax-free state. Every tax state taxes “source income”, that is, income earned in their states. Due to this you may be required to file a NJ resident and NY non-resident state tax return.
Our residence for about 7 months of the year is in Texas. We are considering work camping at an RV park in Colorado for 3 months. The park pays work campers via a W-2. From the comments above, it appears we will need to submit a Colorado non resident State tax return, correct? (no State return in TX, non-income tax state but we would submit the W-2 on our Fed tax return.
Also, for budgeting sake I was deducting 15% of the gross pay as an approximate allowance for Fed Tax. Would I also subtract another 15% for a budgeting estimate as an amount that will be deducted for FICA etc?
Thanks!
If your employer reports your income as CO income and reports the income you earned to CO, then you would most likely have to file a CO Non-Resident Return (assuming you are required to file based on the amount of income you earned). Whether your income is taxed in CO can be determined by Boxes 15-20 on your W-2 Statement.
15% Fed Tax and 15% FICA is a relatively safe estimate you may use, but there are many depending factors that can change these percentages.