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 Louisana, who has state income taxes, and also work in Texas. While I do own a home in Shreveport, LA. I also have a residence in Port Aransas, Texas. In fact, I have a valid Texas driver license, Texas car registration and pay property taxes tied to my Port Aransas residence. I also own a home in Louisana and pay property taxes there. If I earn income in Texas and maintain a residence in Texas, am I exempt from Louisiana State Income taxes? Thank you for your help.
Hi Cathy,
Based on your description of your situation it sounds like a) you are a Texas resident, and b) you did not receive any income from Louisiana sources. If both of these are true, then you don’t have to file a LA return.
I currently work in SC as a contractor. My permanent residence is in IN. Is it necessary for both state taxes to be deducted from my paycheck? I don’t like giving the government an extended interest free loan. What can I do about this so only SC taxes are taken out as this is a much higher income tax rate?
Thanks!
Hi Aaron,
You can try talking to your employer to see if it’s possible to get out of having IN taxes withheld, but my impression is that they do need to withhold taxes in both states. Yes, it’s not great for the government to hold on to your refund money throughout the year, but this way at least you know your liability will most likely be covered in both states.
I own a home in GA and reside in GA. I recently started a project in CT and I am staying in CT for 5-10 business days/month at my client location. Do i need to pay taxes in both states? if yes how much % I need to pay from my income? Can i claim CT state tax back when I file my taxes ?
Please advise
Thanks
Hi Vicky,
You will definitely have to file a resident tax return in Georgia in which you will be taxed on all your income. And since you are earning money in Connecticut you will most likely also have to file a nonresident return in CT. I can’t know for sure based on your description. Check out this page about nonresidents with Connecticut source income from the Department of Revenue Services to see if you have to file. If you do have to file in CT, you will only be taxed on the income you earn in CT. It’s impossible for me to know what % you will need to pay in taxes and yes, you can claim the taxes you pay to the other state so that you are not double-taxed.
Hi,
Just to follow up I am in property management and will be receiving my commissions from the broker in HI. Love the site!
Mahalo
Hi,
I live in Nevada (no State income tax) and I will be working remotely from home my home office. The company I worked for is based out of Maui, HI. It is possible I may travel there 4-6 weeks per year. What is the best way to make sure I am covered?
Hi Larry,
You are correct that Nevada has no state income tax, so you don’t have to worry about that. The real question here is whether or not you have to file a Hawaii nonresident state return.
The Hawaii Nonresident and Part-Year Resident Income Tax Forms and Instructions has this to say: “Every individual doing business in Hawaii during the taxable year must file a return, whether or not the individual derives any taxable income from that business. ‘Doing business’ includes all activities engaged in or caused to be engaged in with the object of gain or economic benefit, direct or indirect, except personal services performed as an employee under the direction and control of an employer. For example, every person receiving rents from property owned in Hawaii is ‘doing business’ and must file a return whether or not the person’s expenses exceed the gross rental income.”
I’m a little unclear about your particular situation. If you are an employee (ie getting a W-2 from this company in Hawaii) the above probably does not apply to you. If you’re not an employee (getting a 1099 for example) this almost certainly means you have to file.
BUT even if you are an employee, Hawaii still requires you to file if you earned more than $1,040 in Hawaii. I’m going to guess this is the case, especially if you are there 4-6 weeks out of every year.
If I had to venture a guess based on what I know, I would say that yes, you should probably file a nonresident Hawaii return in which you pay tax on all the income you earned in Hawaii. But you should look over this document more closely to make sure the filing requirements really do apply to your specific situation.