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 Arizona but employer is asking me to work in Ohio for a year.
Would I required to face double taxation ?
I moved from Colorado in Jan 2017. I am still employed by the same employer in Colorado, but now work from home here in Arizona full time. My employer is the Federal Government. So do I need to have state taxes deducted from both states? And how much from Colorado?
What state forms that you will have to file will be reflected by the state information section in your income statement. If it has any indication that income was reported and taxes were withheld in either state, you will need to file accordingly. It’s best to wait for the income statement before making any determinations on how you should file. Rapidtax can help you with filing your state returns when the time comes and our customer support team is available to help guide you along the process.
Hi…i’m having a hard time with NJ state tax return – i lived in NJ for most of last year and moved to TX in July. I earned income in NJ for the time I was there, but have been earning income in TX since I moved here for fellowship (except the month of July where I was technically unemployed). I also earned a 1099-misc in TX which I reported on my federal return…but since there is no state income tax in TX, i didn’t have to do anything on the state level.
Do i need to put my TX w-2 on my NJ state tax return? I’ve always just filed the NJ W-2 (which is from Rutgers as a state employee) without any additional deductions or credits and thats what I am hoping to do this year – to simply keep it easy.
would appreciate any advice regarding this.
Depending on the number of days that you resided in either NJ or TX, you may have to file 2 part year resident forms. This means that the income earned in said state is only taxable in that specific state. You do not need to report your income earned from other sources if it falls outside of the state’s jurisdiction, specifically for part-years.
I have a home in West Virginia. I took a job in Pennsylvania that requires me to live there during the week and I come home on weekends to spend with my wife and children. Pennsylvania income tax rate is about 50% of West Virginia’s. If I purchase a second home in Pennsylvania, what is the best tax situation to file as and can I avoid West Virginia withholding? Should I file as a PA resident and WV non-resident, while my wife files as a WV resident and PA non-resident?
These multi states situations can be very confusing depending on where you and your wife work. You might want to file as married filing separately on both state returns, so you can both can file as full year residents within your respective states. However this is may not be the most advantageous filing status, I would advise reviewing this scenario with a local CPA or accountant, if you are not looking to file your tax return with our website. You may also want to speak with payroll to ensure that you are being taxed in the correct state.
I have an employee who works in Philadelphia but live in New Jersey. Does he fill out a state form for Jersey and the city tax for Philly.
Depending on which state your employee’s state taxes are being withheld, he will need to file for that state. If it is being withheld from NJ, he will just need to file a resident return. However if it is being withheld from PA, a non resident and full year resident return is necessary.