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.
Tax Advisor,
I found some great information on this site – great job! I’m wondering if you could provide some clarification for my situation.
I will be starting a new job soon that will require me to travel and work in different states (similar to a consultant).
The company is based in California, I live in Massachusetts, and will be working in California, Illinois, and Wisconsin. To make it more complicated, I will be relocating to Florida (no state income tax) at the end of June or beginning of July (2012).
My questions are:
1) would I fill out a W4 in every working state and my home state (MA)?
2) during the 2013 tax season, would I need to file state taxes in all four states?
3) even though there may be a tax credit in MA (I believe they do) at the end of the year to recover the “double tax,” is there a way to avoid some of this “double tax” during the year? This causes a personal budget nightmare and would like to minimize this “double tax” throughout the year rather than recovering this amount through a credit at the end of the year. Is this even possible?
4) once I move to Florida, would I recieve a credit for paying taxes while living in a state that does not have state income taxes? Or no because I’m still liable of paying taxes where my income was earned?
Thanks for the help!
Hi Chris,
Okay, first question: a W-4 is a form that you fill out for every employer, not every state. You should have one W-4 for all the work you do with this company.
Second: Yes, you probably will have to file taxes in all four states. You will definitely need to file taxes as a resident in MA. But if you’re moving to FL, you will probably need to file as a part-year resident. In all likelihood you will need to file as a nonresident in the three other states as well. Most states have a gross income threshold below which you don’t need to file, but they tend to be pretty low bars.
Third: the only way to prevent “double taxation” is to claim the taxes you pay as a nonresident on your resident state’s return.
Fourth: Even though FL does not have an income tax, you still have to pay income tax in the states where your money was earned. You’ll probably get some of it back, but not all of it.
I am a truck driver running over the road. I live in Texas and the company I work for is out of Ohio. They have started taking ohio tax out on me.. but I work in multiple states daily.. do I gotta pay tax in each state I travel thru as a driver? And I have neve had to pay outside state tax because I have a Texas residence.
Hi Shelli,
Congress has been trying to pass a law for some time now about standardizing state laws for non-residents travelling for work paying income taxes. Unfortunately, there is still no law in place so that non-residents have a straight answer. It will legally be based on each state that you are travelling through. For example, non-residents travelling through Ohio are subject to tax withholding on the very first day of travel, meaning as soon as they enter the state for work. On the other hand, non-residents travelling through New York are subject to tax withholding only after working there for a certain amount of days. On top of this, certain states and employers are more strict with these guidelines.
I live in NV (no income tax state) and work in AZ. Do I file a non-resident AZ tax form and claim a credit and refund for the taxes I have paid to AZ?
Sheryl,
That’s correct. You should file in Arizona as a non-resident.
I live in Arizona i work from home and work for a company in New York how do i file my state income tax ? do i have to pay in two both states ?
Hi Stephanie,
Don’t worry, you don’t have to pay New York state taxes. You are considered to live and work in Arizona. Therefore, you only need to file Arizona state taxes.
I work for a CA employer, but I work from home in Nevada. Do i pay CA tax and file a non resident return, or am I considered as work and live in NV, hence I don’t have to pay CA state taxes??
Hi Fay,
You do not need to file a return for California. You also do not need to file a state resident return for Nevada since it is one of the nine states without an income tax.
As a general rule, you have to file a resident tax return in the state where you lived, a part-year resident return in any state you moved to/from, and a nonresident return in a state where you earned money but didn’t live.
Take note: it doesn’t matter where your company is located. If you didn’t live in a state, and you physically did not work there, you don’t have to file a return there just because the company paying you is based there.
I currently live in Oregon and work in California. Do I need to change my withholdings to Oregon or keep them California or both?
Hi Haley,
You will actually be taxed in both Oregon and California. The good news is when you file you should be able to claim the taxes you pay in the other state, which should prevent you from paying much more in taxes than someone who just lives in one state.
I currently work in New Jersey and have an opportunity to live in New York but am concerned about the tax implications of this. Am I going to end up paying more taxes if I live in New York and work in New Jersey. Should I just look for a place in New Jersey and live in the same state I work in?
Hi Dave,
Living in New Jersey might make your tax situation a little simpler, but it probably won’t save you money. It’s true that when you file, you’ll be taxed in both New York and New Jersey. But you’ll be able to claim the taxes you pay in the other state.