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 Oregon and work in Washington for a company based in Kansas. I am having difficulty getting the company to withhold Oregon taxes (which are required) What do I need to do to make this happen??
Since your employer has not been taking Oregon taxes out of your paycheck, you’re going to have a hefty tax bill when you file your return. If your employer refuses to withhold Oregon state taxes, you have the option of making estimated tax payments to Oregon throughout the year. Generally, you can make these payments 4 times a year.
i live in pa, work in md & they are taking state taxes out, how do i get that to stop? what do i have to do?
Both PA and MD will tax your income. However, we can prepare your resident PA and Non-resident returns for you. This will allow you to receive a credit from PA for taxes paid to MD. Click here to get started today.
During 2017, I worked for the federal government and my office was in Texas. I moved and became a resident of Oklahoma during 2017. I continued to working out of the Texas office all of 2017. If I worked out of an office in Texas but live in Oklahoma, how is my income handled? Is my Texas employment fully income taxable in Oklahoma for the prorated number of months I lived in Oklahoma? Or since I am employed in Texas, will it be exempt from Oklahoma state taxes?
My spouse is retired from two jobs – one in Oklahoma and one in Texas. She draws retirement checks from both states. I assume that her income will be prorated for number of months she lived in Oklahoma?
My daughter-in law is a resident of Hawaii, lives in SC, but works through a web based business that is in Virginia. She is a Married to active duty Coast Guard. Where does she need to file state tax?
If I am military and from MI and the pay is not taxed, but my training and bases are out of state, will I pay those state taxes unless those states are tax free>
The state(s) that your base and training are located will not require you to pay state taxes.