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 am an Oregon resident who works and has an apartment in Arizona. Arizona let’s you choose a percentage to be withheld from your check for state taxes. It ranges from 0 to 5.1%. How do I proceed so that I don’t end up owing taxes at the end of the year to Oregon, Arizona or both?
My husband works in the oil field he travels to Louisiana and take a helicopter from there to his ship in the Gulf. We live in Mississippi and his company’s office is based out of Texas. Do we have to file a return with Texas since there is no tax? Also would we file that he “made money in other states” “lives in one state and works in another”?
Thank you
I was a resident of Arizona, but worked as a travel nurse in multiple states until the end of December 2016. I did not work again until I took a permanent position in NC which started 1/16/17. I got my NC driver license, registered to vote, and registered my car by 2/8/2017. My only income was from the NC job for all of 2017. My questions is: Do I have to pay AZ taxes for 2017?
Thank you
I work in NYC but live in NJ. My understanding is this means I should be seeing New York State Income tax and disability, but not NYC Income tax, since i’m now a non-resident. When I file taxes, I should be receiving a return from NY that I will have to pay with to owe NJ. Is this correct?
I’m wondering if I was better off staying living in NYC instead of moving to NJ if I’m still working in NYC. Thoughts on that?
We live in Mississippi. My 23 year old son goes to school at Auburn in AL and works as a graduate assistant there. This past summer he worked as an intern in Houston, TX. His permanent address is Mississippi. How would he file.