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.
Hi Tax Advisor,
I “live” in NJ, at least on paper, but all my income is based out of GA. I have also been out of the country for 7 months of the year continuously (april – end of Oct). Will i have to pay income tax in both NJ and GA on all my income? How do I go about paying the taxes I owe in NJ?
Ps. I dont own a car, house, or apartment. I have an NJ drivers licence and that is where my parents live but i dont pay rent to them (as i have been traveling for work all year). Im not sure if this chances anything.
Thanks in advance!
Hi Kevin,
First of all, you have to pay taxes on all of your income to the state where you are a permanent resident. In your case, this would be New Jersey. Given your unique circumstances, I’m not 100% sure that you qualify as a NJ resident, but considering that you have a NJ driver’s license, your permanent address was in NJ (I assume?), and that you were living there before April and after October (again, I assume), I would guess that you are a NJ resident. Again, to be absolutely sure you would have to speak to a tax agent and give them all the details of your situation, but I would guess that you are a NJ resident, which means you will have to file a NJ resident tax return.
You also have to file a tax return in any state that you physically earned money in. If the organization that is paying you is located in Georgia, but you never actually went to GA and earned money there, you do not owe GA state tax. If you did go to GA and earn money there, then you will have to file a GA state return as a nonresident and pay tax just on the income that you earned while physically in GA.
I own my house in NC, but was physcially living and working in MD and filling state taxes there. I got a bill in the mail called Notice of intent to assess for failure to file NV return. Am I really responsible fot this or can I send an explanation
Hi Denise,
Are you a Maryland state resident? If so, you should only have to file a North Carolina return if you received income from a North Carolina source. For example if you physically carried on a business, trade, or profession in North Carolina, or you derived income from the property you own in North Carolina you will have to file a nonresident return. If you did not derive any income from a NC source, you shouldn’t have to file.
But, you have to be sure that you are no longer a NC resident. The state might still think you’re a resident of NC. Did you change your driver’s license and voter registration? You may have to call them up and prove that you are no longer a resident.
I live in Utah but work in Wyoming where there is no state tax. Will I have to pay Utah state tax? Can my Wyoming employer withhold Utah state tax from my check?
Hi Tammy,
Yes, if you are a Utah resident you will have to pay tax in Utah on all of your income, no matter where it is earned. You should talk to your employer about withholding Utah taxes – they should be able to do so.
Hi Tax Advisor,
My husband’s company will be relocating him to WA. I work remotely, my company is based out of CA. So how would I file taxes if I live in WA but work out of CA? Thanks!
Hi Loren,
Washington state has no income tax, so if you are going to become a WA state resident, that means you don’t have to file a return in WA. And if you do all of your work remotely, you will not have to file a CA return. You only need to file a CA return if you actually do any work in CA. In that case you would need to file a nonresident return in CA in which you pay tax on all of the money you earned there.
Be aware though, that if you are moving in the middle of the year, you will need to file a part-year resident return in CA (assuming that’s where you live now). You will have to pay CA for the portion of the year that you lived in the state.
My company’s headquarters are in KS. All of our employees live in KS. This is where the employees come to work most days. As part of the job the employees are require to travel to different states for varying lengths of time. We do repair & maintenance work and Consulting & Oversight work. Do we need to withhold income taxes for each state the employee travels to to perform work? Are their guidelines in determining when we would need to consider their income earned in the other states?
Hi Melissa,
Yes, there are guidelines for determining whether a nonresident has to pay tax in a state they work in. Unfortunately, there is no uniform standard for the whole country. Each state has its own requirements. In your situation the best thing you can do is go to the website of each state’s tax authority and look for the section about who has to file or about nonresident returns. Even if your employees would be required to pay taxes in these states, I’m not sure if that means that you as an employer are obligated to withhold them. Getting into contact with someone from that state’s tax authority might be your best option.