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 Florida, but my company is in NY. Am I responsible for paying NY state tax?
Hi Amanda,
You only have to pay NY tax if you physically worked in NY. If you did all of your work from FL and only worked for a company based in NY, you don’t need to pay NY tax.
I worked for a company in CO. I just moved to FL and the company is now allowing me to work remotely from FL. My residense will be declared as FL and all my work is done in FL but for the CO office. I know FL doesn’t have state taxes but will state taxes for CO still come out of my paycheck. I keep getting scewed answers from my payroll department.
Hi Theresa,
If you moved permanently to FL and only work in FL then you shouldn’t have to pay state income tax on your earnings. You should only have to pay CO income tax if a) you are still technically a resident of CO or b) you were physically in CO when you earned your money. Based on your description of your situation, it doesn’t sound like you should have any CO income tax withheld. But if your payroll dept. does withhold CO tax, then you will have to file a CO return in order to get that money back.
Hi,
I have permanent residence in Illinois and just began working for a company based out of Rochester, NY. I provide support to the sales people in my territories of ND, MN, WI, MI and IL. when not traveling I work out of my home in Illinois. My question is what state do I have to file state income taxes with? Thank you in advance for your reply.
Hi Keith,
You definitely have to file taxes in Illinois, since that is your state of residence. You will file as a resident and IL will tax you on ALL of your income. But then you also need to file taxes as a nonresident in each of the other states in which you earn money. So, if you physically went to ND, MN, WI, and MI you may have to file there. Check the state tax authority websites to see who exactly has to file. Most states will exempt people who were in their state for only a few days. As for NY, you only have to file a return if you went there. Just because the company you work for is based there does not mean that you necessarily have to file a NY return.
I live in Texas but work for a company that requires me to travel. The new company policy is if I work more than 10 straight days in another state they will withhold that state’s income tax. This is a new policy so is this a new? I could work in several different states a year. Will I have to file returns in each state? The cost of doing so will be prohibitive. Can I get around this by leaving the state for 24 hours – say I am working in Nebraska, can I travel to SD every 8 or 9 days to avoid this?
Hi Keith,
The decision to suddenly withhold state tax from your paycheck is a new policy of your company. It has nothing to do with some government policy change. Technically, you are supposed to file taxes as a nonresident in every state aside from Texas where you earn money. Most states have a policy about how long you have to be in the state before you have to file. I recommend checking the website of the tax authority for every state you work in and checking the Who Has to File? page to see if you qualify. Your company probably figured that ten days was a good cutoff that works for most states. Now, if your company does withhold state taxes from your paycheck, you will have to file a return in that state no matter what the state’s requirements are. Most likely, you will be able to get some of this money back when you file. Unfortunately whether you have to file has nothing to do with how many consecutive days you spend in the state, so staying in a motel somewhere else every 9 days is not going to make a difference.
Hi There!
If I live in Chicago, but my employer is in Texas, I would still pay state taxes, correct? How do I pay these if they are not deducted from my payroll check? I am looking into a job that wants me to open a satelite office in Chicago but not sure exactly how this works. Also would I be able to deduct rent, utilities, etc… if I work from home?
Thanks!
Hi Dianne,
I’m guessing that you’re a resident of Illinois. That means that you will have to pay IL state income tax on all of your income. You must also file a nonresident return in every other state that you earned money in. But you do not need to pay taxes to the state where your employer is located if you did not work there. Besides, Texas has no state income tax anyway.
As for the new job you are considering, it will not really affect your tax situation. Obviously, the more money you make, the more you will owe to IL. But if you’re a resident, they’re already taxing all of your income so it makes no difference where you earn it.
As for the deductions you may be able to claim if you work at home, take a look at the IRS page for deducting business expenses, particularly the section on business use of your home.