State Income Tax: Living in One State, Working in Another

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.

WATER SPORT (1)

 

1,553 Replies to “State Income Tax: Living in One State, Working in Another”

  1. I lived and worked for a NJ company, recently my company allowed me to relocate and work remotely from Maine. I needed to help my parents with medical issues. I have to return to NJ every six weeks for 1 week. This has been going on for 3 months and may continue for the rest of the year. My paycheck still has my old NJ address and they are taking NJ taxes no Maine taxes. Where do I file taxes. I have moved my mailing address to Maine but still have financial ties in NJ.

    1. Hi Renee,

      Have you changed your permanent residency to Maine? If this is the case, it sounds like you will have to file a part-year resident return in both NJ and ME. If this is not the case, and you are still a permanent resident of NJ, you will have to file a resident return in NJ and pay tax on all of your income no matter what state it was earned in. In this case you will also have to file a ME nonresident return and pay tax on the income you earned while in ME. Don’t worry about your withholding. When you file taxes you will be able to claim the taxes that have already been withheld by one state so you won’t be double taxed.

  2. Thanks for the info. He didn’t have a car there and put off getting a Illinois driver’s license until the end of last year. He did sign an apartment lease which went from June 28, 2010 until April 2012. I don’t think he registered to vote until recently. Would he have to pay both La and Illinois tax? He paid Illinois what he owed. Would La just get some of what he paid Illinois. Like I said his only employment was in Illinois. I don’t know how the government expects people to know all of this. I tried looking it up on the La website and it’s hard to find. He just figured if he only worked in Illinois then he just owed Illinois.

  3. My son was a student (unemployed) until May 2010 and unemployed in Louisiana from Jan 1, 2010 until moving to Chicago on June 28, 2010 for a job (internship). After the internship he found another job in Chicago and stayed there. He is still living there. He filed and paid Illinois tax for 2010. He used my address in Louisiana on his 2010 Federal and Illinois income tax ( it says mailing address on the form)because of a problem with his mail at the apartment he lived at. I had mailed him an iphone and it was lost in the mail. He also didn’t receive a couple other important items such as his W2. Since he had a Louisiana address on the forms they want proof that he doesn’t have to pay Louisiana income tax. Since he lived in La. from 1/1/10 until 6/27/10 should he have filed with La? All income from that year and every year since has been in Illinois.

    1. Hi Jayne,

      Whether your son should have filed in LA or not depends on his residency. If after six months he changed his official residency from LA to IL, then he would be considered a part-year resident of each state, and in LA part-year residents only have to file a return if they had LA source income. Since your son had none, he wouldn’t have to file a return in this case. However if your son maintained his permanent residency in LA for the rest of the year even after he moved to IL (and using an LA mailing address even into 2011 is pretty good evidence that he remained a permanent LA resident for the rest of 2010) he would have to file a LA return and pay tax on all of his income, no matter which state he earned it in. So your son has two choices: 1) He can file a return in LA, or 2) he can attempt to prove that he changed his permanent residency to IL in June (this would involve proving that he did things like registered his car in IL, got an IL driver’s license, registered to vote in IL, etc.)

  4. I live in tx ( no state income tax) and recently received a signing bonus from a company in CO. They have already deducted CO state income tax from the signing bonus. I will be living the entire year in tx and will be starting this new job next year in CO. Do I actually owe CO income tax if I don’t live there this yr and if not is there a way to get a CO state refund ?

    1. Hi Ben,

      If they withheld Colorado taxes from your bonus that means you do have to file a nonresident CO return. You might get a refund for some of that tax withheld, it’s impossible to say.

  5. I am from Louisiana, but lived and worked in Houston, TX from May 2009-May 2011. I received a letter from the LA Dept. of Revenue stating that I filed Federal Income taxes, but not one for the state of LA for year 2010. Since I lived and worked the entire year in TX, without performing any work in LA, am I required to pay LA state income tax?

    Thank you

    1. Hi Jomical,

      Yes you are required to pay Louisiana state tax provided you remained a LA resident. In the state that you’re a resident of you always have to file a resident return and pay tax on all of your income, regardless of where it was earned.

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