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 wife works in Mississippi and pays Missiisippi state tax. We live in tennessee which has no state income tax. Will simply filing as a non-resident automatically give us the Mississippi state tax back? Are there other steps involved?
Thanks!
Mark
Hi Mark,
Nope, all she has to do is file a nonresident Mississippi state tax return for only the income that she earned in MS. Exactly how much you’ll get back depends on the state and your individual circumstances. You can probably expect some of that tax back, but it’s impossible to say how much, if any.
My husband just started a job in FL and is living with his parents until we sell our house in NY. He is applying to change his NYS drivers license to Florida on Friday. He also does a consulting job for his previous employer through a temp agency in NY. We are wondering what tax implications will occur. Should his employer in Florida use his parents address for his checks even though they are just direct deposit? Any help you can lend would be greatly appreciated!
Thank you
Hi Christie,
Based on your description of your husband’s situation, it sounds like he will have to file a part-year resident tax return in New York. Lucky for him, Florida has no state income tax, so he won’t have to worry about filing there. He will have to pay tax in NY for any income he earned while he was still a NY resident, so this includes both his permanent job and his consulting work. But he only has to pay NY tax on the consulting work for the period after he ceases to be a NY resident if he physically performed work in NYS. If all of the work was in FL, he won’t owe any tax. From a tax perspective, because FL has no state income tax, he behooves him to change is residency to FL as soon as possible (which would probably include changing the address he has on file with his employer) so that he will owe less in NY tax at the end of the year.
i love in washington and am looking at a job in oregon that would pay about $13/hr,, About how much would i take home after taxes are taken out? im trying to figuring out if itll be worth it to take the job.
Hi Lacey,
It’s impossible for me to say how much will be taken out for taxes because I don’t have enough details about your life and financial situation. But the IRS has a nifty withholding calculator that can help you figure it out. And keep in mind that though Washington has no state income tax, Oregon does. So at the end of the year you will have to file a nonresident return in Oregon on all of the income that you earned there.
Been working at a California based company ‘s satelite office in Connecticut. The office has been moved to a location in New York state (not the city). I happen to also live in New York state. Noticed on my recent paystub that Conn. State Tax is still being withdrawn and not New York state. Shouldnt New York State tax be taken out rather than Connecticut?
Hi Tom,
Yes, this looks like an oversight. If you’re both living and working in NY (and doing neither in CT) then there’s no reason for CT taxes to continue to be withheld. I would talk to whoever’s in charge of payroll at your office, it was probably an oversight.
I am a NC resident who just accepted a job in SC. I understand the end-of-year filings, but how will my paycheck be effected? Will I have both NC and SC taxes witheld from each paycheck?
Hi David,
This is a question for your payroll or HR department. I would guess they’re going to withhold SC taxes.