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.
So I have an odd case, I live in NH and work on an island that has historically belonged to NH but which the US Supreme Court gave to ME in 1977, requiring me to pay ME state income tax.
The oddity is that ME taxes my NH income, as well as that income earned in ME. They claim that they “don’t”: they fabricate the technicality of jacking up the interest rate on “in-state” income based on income you earn out-of-state. The net effect, however, is that if I earn income in NH, I pay more to Maine at the end of the year than if I only earned income in ME.
I haven’t seen ANYTHING online about this, yet, though, and I’m researching means of trying to expose it and fight it. The bigger sting is that they’re taxing out-of-state military income, not just civilian income, of a non-resident.
Only the source income earned in ME should be taxed by ME. Maine’s confirmation that they do not tax your NH income sounds about right. You can reach out to ME to determine if they access higher tax rates if you have earned out of state income.
So, I live in Nashville, Tennessee, but my employer’s corporate office is in Los Angeles, CA. I work for them around the world with maybe only 5% of my time in California. Currently, my pay statements list my TN home address, but I am paying California taxes on all of my income. My payroll department pretty much told me to suck it up. Any advice on this issue that you could provide?
For further advisement it may be in your best interest for you to consult with a local CPA or accountant. You may want to contact CA state offices on further advisement on the legality of the situation.
We are a company based in Louisiana and have a division in South TX where employees work and live. With other companies we have worked for in past we had employees fill out a L-E4 tax form to exempt them from paying Louisiana Taxes. Is this a legal route to go instead of the employees having to fill out on two returns?
It would be within your best interest to consult with a local CPA or accountant on the legality of this matter. Unfortunately we cannot provide you with additional information on how Louisiana state taxes should be handled when filing exempt for your employees from paying taxes to the state.
I work in Washington but my wife is in Illinois. I have a apartment in Washington state and also in Illinois Half of the year I’m in Washington and other half I work remotely from IL from my wife’s apartment.
Do I have to file taxes for both of the states ? As per my I’d I’m in Washington state.
Depending on how your payroll department is withholding your wages and taxes, you may have to pay taxes on your entire income earned in IL. Even though you may be filing part year resident forms, if your department has state information on your income statement for IL, you will have to file a IL tax return Rapidtax is a website that you can use to file your state return forms, and our customer support is available to assist you throughout the process.
I am a Airline Attendant. I live in CA, but my international home base is Florida? Is it not true I only file in Florida? They have only been deducting from Florida
You would file a Resident Tax Return for where you live and are domiciled during the year, which sounds like CA.