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 Texas, about to move to and work in Illinois. I want to rig it so that I file and retain my residence in Texas so that I do not have to pay Illinois state Taxes. There has to be a slick way to rig this :).
Unfortunately, If you earn income in IL that state will require you to pay income taxes. I advise you refer to the IL state website for your state filing requirements.
Same company in two different states: i reside in one state and work in the other state for same company. Two state returns?
If you are earning income in another state that you do not reside, you will have to file a non-resident return for the income earned in that specific state, as well as a resident return. You will be able to allocate a non-refundable credit for taxes paid to your non-resident onto your resident state.
Keep in mind this applies only if both states have state taxes.
Hi. I live in Wyoming (no state tax!) but am considering taking a job in Nebraska, which does have a state tax. So I understand I need to file a non-resident tax form for NE. But I file my WY taxes jointly with my wife in Wyoming. So does the non-resident form in NE only deal with the state taxes, while my WY form deals with the federal taxes? Or are both forms taking out federal taxes? And since I’m filing jointly in WY, does the non-resident form have to be filed jointly as well, even though my wife works in Cheyenne? Thanks for making some sense out of this for me!
For the State of Wyoming, a State tax form is not required to be filed with your State offices.
However, you will be filing a non-resident return with NE as well as a Federal Return with the IRS. This involves only two separate tax returns.
As for the filing status, if the state of NE permits to you file with a different status than what you filed for on your Federal, you may choose a different filing status.
I moved from Idaho to Washington state for work, I have a permanent residence in Washington State, but I still own a house in Idaho that I do not intend to sell but do not live there. My husband goes back and forth from our home in Washington to Idaho, but he has no income. This is our first year in Washington State, do I have to pay Idaho State income tax?
As long as none of the income earned throughout the year is from Idaho, a State Income Tax return is not necessary for filing. The return is only necessary, for income earned or loss incurred from a business or rental property for the year.
I am a resident in Michigan but I’m working as a travel nurse in Texas (not a permanent move). My company won’t take Michigan state taxes out of my paycheck because I’m working in Texas but I’m afraid, since there is no state income taxes in Texas, that I’m going to have a big bill to pay when I file state taxes in Michigan. Is there anything I can do to avoid this?
Unfortunately, this may not be something you can avoid, as you will need to file your taxes and reserve an amount at the time of filing to pay off this amount. Payroll taxes are put in place so that you won’t need to do so yourself, but generally, this concept stays the same, regardless if it’s your employer withhold an amount to pay your taxes for the year, or if you do this yourself.