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 employer is located in Arizona. For initial 4 months I was working and living in Arizona. For remaining year(i.e. 9 months) I worked and lived in Washington for client in Washington but my employer is still in Arizona. Is this correct understanding; that I should pay 4 months state tax to Arizona and claim AZ state return for the duration I have been in Washington?
You may need to file AZ and Washington part-year returns. Please look at the state reported in box 15 of your W-2 for an indication of which state withheld taxes.
I live in Florida and my employer is in Florida. I work remotely from my home. I also own a home in Kentucky and would like to work remotely from my home there for part of the summer. Would my employer have to deduct taxes for Kentucky for the period I work remotely there?
The income regardless of how long the stay was is always subjected to taxes in the state that it was earned in. For the time stayed in KY, your employer would need to report the income that you earned during your remote stay in Kentucky, as that income would be considered KY state income.
I live in CT and I work I MA. I have taxes taken out of my check from the stated of MA. Do I need to file state taxes in both states? Can all this be done on the same state tax return, or do I have to do two separate returns?
You will need to file a Full-year resident return with CT and a non-resident return with MA. Your non-resident return will allow you to allocate a credit for taxes paid to CT so that you will not have to pay taxes to both states.
Hi,
If I’m currently a resident of Wyoming, and intend to maintain residency here, which is where I work, hold a driver’s license, registered my vehicles, vote, attend church, and do my doctoring, errands, etc., but decide to live in a rented apartment in Idaho, do I still need to file Idaho state taxes?
Thank you,
Parker
Your income is subjected to taxes from where your income is earned, not necessarily where you reside. However, if you are a full-year resident of a specific state and you do not qualify to be a tax filer in Idaho other than a non-resident, you must file a non-resident return with Idaho.
Hi, My home in Dallas. I am working as consultant, my employer is from Virginia and my working location is Chicago, IL.
So do I need to file the tax for three states ? Thanks in advance for valuable advice.
If you are reporting income that you received on a W-2, you will need to file a non-resident form with VA, only if boxes 15-20 indicate income information being reported to VA. If you also resided in Chicago for the year to work, you may have to file a full-year resident return with IL. You will be able to allocate taxes paid in VA for a non-refundable credit claim on your IL return for taxes paid to another state.
Texas does not require a state filing.