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.
my husband works in Alaska two on and two off and we live in Louisiana…we have a physical address in Alaska and an Alaska id do we have to pay LA taxes
Hello Kim,
If you live in Louisiana, you would most likely have to pay LA taxes as a part year resident.
A employer located in Connecticut and have one employee living in New Jersey . Do the employer have to deduct for New Jersey state taxes and do the Employer have to register with the state of New Jersey?
It may be best for you to speak to either a CPA or an accountant. Whether you are obligated to withhold taxes in your employee’s resident state will be determined by the state laws. However, it is not unusual for one to have to file a resident return and a non-resident state return for the year for income earned in another state.
I am transitioning from MD to TX. I work in DC. MD has a state tax, TX does not. I just received my TX drivers license and am relocating to TX which will give me 6 months in each state. Do I pay the full MD taxes for the year since I still will be earning money in DC or just half or none at all?
Hello Ray,
Your residency depends on how long you have lived in a state and whether or not you have earned income there. If you have lived and earned income in MD the entire year, MD (Resident state) will tax all your income. If you lived and earned income in MD for part of the year, MD will be considered a Part Year Resident state and will only tax income earned in MD.
Hi. I do payroll for my company. We are located in FL but we hired a person who lives and he is going to work for us in South Carolina. Do I have to deducted SC state taxes or he is responsible for doing in when he’ll files his return?
Thanks
You can choose to deduct SC taxes for your employee, however, he is also responsible for filing his state return with the income that has earned from you. He will just need to file a residential return with SC for the income he has earned in FL.
This is an awesome article and I believe I have my answer from all the reading and comments, just want to make sure I have this down right, it’s a bit confusing.
I’m retiring from the military and my home of residency is Ohio. I have a job offer in Florida that I intend on taking for a year or so. I don’t want to lose my residency in Ohio. With my military retirement pension, I believe both states exempt taxing. Now with my job in Florida, even though I’ll have an apartment there, am I right to assume I’ll file nonresident in Florida and Resident in Ohio? Also will my retirement pension be applied to both 1099s as income in both states or just my home of record (Ohio).
Thanks!
Hello John,
Based on the information provided, you would be a Part-Year Resident if you lived and worked in Florida or a Non-Resident if you only worked but did not reside in Florida. However, you would not file a Florida state return because there are no state taxes in Florida. On the other hand, your 1099s received in Ohio would be taxed in Ohio, your Resident state.