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 ALABAMA, BUT I WORK 5 DAYS A WEEK IN GEORGIA AND HAVE MY PAY DIRECT DEPOSITED IN MY ACCOUNT IN ALABAMA.
WHERE SHOULD I BE PAYING MY STATE TAXES AND SHOULD THIS MAKE A DIFFERENCE IN MY FEDERAL TAX RATE?
Hi Bart,
You have to file taxes as a resident in Alabama, where you will be taxed on all of your income. But you must also file as a nonresident in Georgia, where you will be taxed only on the income that you earn in GA. Don’t worry, you won’t be double taxed. You will be able to claim the taxes paid to the other state. This should not affect your federal tax rate.
I live in FL and will be working for a company in IL. I will be out in IL 50% of the time and the other 50% of the time I will be working from home/FL. Do I have to pay taxes for IL?
Hi Suzie,
Yes you will have to pay taxes in Illinois. You will have to file an IL nonresident return and pay taxes on the income that you earned while in IL.
I work in and live in Vermont but my mail, etc. goes to my parents home in New York State (my car, motorcycle, etc. are registered and licensed there). I was working in New York last year but only for 1 month and I’m assuming I’ll get a NYS Tax form this year. To which state to I file or do I have to do both? and if so, do I get credit for taxes taken out in Vermont (non-resident?)
Hi Pat,
Your situation is tricky. You will need to file in one state as resident, and in the other state as a nonresident (the exception to this would be if you moved sometime over the last year, in which case you would file as a part-year resident in both states, but that’s a whole separate can of worms). It sounds to me like you are a Vermont state resident, but I’m not entirely sure. You need to spend some time on the NYS tax website and decide for yourself. But let’s assume that you are a Vermont resident. That means you will file a resident tax return in VT on which you pay tax on ALL of your income. Then you file a NY nonresident return in which you pay tax on the money you earned from NY. And don’t worry about being double-taxed: you will be able to claim the taxes you pay to the other state.
I am employed with a Michigan company but work from home, I am thinking of moving to a surrounding state, but keeping my at home job from Michigan. Will I have to pay taxes for both Michigan and the new state?
Hi Michelle,
No, most likely you will not have to pay MI tax. The only cases in which you would have to file a MI would be if you maintain your MI residency, or if you physically do work in MI (for example, if the company required that you work from their office a few weeks a year). If you permanently move to another state and do not work in MI at all you won’t have to pay tax in MI.
Hi,
I’m starting a job as a pilot with Hawaiian Airlines, but I live in Portland OR, I will be flying in their “inter island” fleet which means, all with in the state of Hawaii…. I have an address here, as per the companies requirement, but I still maintain my primary residence where my wife and kids live in Portland OR, and I am there 33% of the month. Would I pay taxes in both states? or just Hawaii?
very confused…
Hi Sam,
You will most likely have to file both a Oregon and a Hawaii state return. It sounds like you are still officially a permanent resident of Oregon. In this case you will have to file a resident return on all of your income, regardless of where it was earned. Since you are earning money in Hawaii, you will most likely have to file a nonresident return in Hawaii as well. According to the N-15 Instructions, “every individual doing business in Hawaii during the taxable year must file a return.” As a nonresident you will only pay tax on your Hawaii income. On your returns you will be able to claim the taxes you pay to the other state to ensure that you are not double-taxed.