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 lost a position in CA, Oct 2012, and am looking to take a position in FL starting in January 2013; I will relocate to FL but the house I own and my family are in California, they will not move for at least 1-2 years; the FL company will be paying me on a W-2; I intend to become a FL resident (again); get a FL DL, register my car and have my voter reg there, I will keep my other car reg in CA; for 2013, will I need to pay CA state income tax if my family, car and house is still in CA (my spouse does not work)? I can see paying property tax on the home/car but not CA state income tax, is that a correct evaluation if I am no longer a CA resident but my family is?
Hi Kevin,
It’s impossible for me to determine which state you are a resident of. You are the only one who can make that judgement. But I can point you toward some relevant documents that will help you establish what state you are a resident for.
California – https://www.ftb.ca.gov/forms/2011/11_1031.pdf
Florida – http://dor.myflorida.com/dor/forms/2011/gt800025.pdf
I can tell you that if you are a FL resident, and all of your income comes from FL, then you won’t have to file a state tax return in CA or anywhere else. IF you are not a CA resident, then you only have to file a return there if you physically earn any income in the state.
In February of 2012 I moved from Annapolis MD to Orlando FL. My company is based in MAryland. I am a permanent FLorida resident now and work from Florida. Beofre the move..I was paying Maryland state income tax and Anne Arundel County tax. After moving the County tax has ended immediately while the state tax continues to be withheld. When I file my tax return…is that money due back to me? I understand I was a Maryland resident for 2 months…so maybe not all of it. But in moving forward for my 2013 tax return…when I would have been a Florida resident for the entire year…will all the income tax being withheld be due to me? I have talked with work and the accounting department is telling me they withhold the money because I am taking direction from a company based in maryland…so they can withhold state inome tax. Is that possible to owe MAryland state income tax when i am not a Maryland resident? Your help is appreciated greatly!
Hi Chris,
For 2012 you will have to file a Maryland part-year resident tax return and you’ll have to pay tax on all of the income you earned while you were a resident of Maryland. Since this was only two months (and MD taxes have been withheld for the entire year) I imagine that you should get most (but probably not all) of this money back in the form of a refund.
As for the upcoming year, I don’t think any MD taxes should be withheld – especially if you are planning to be a Florida resident for the entire year (where, I’m sure you’re aware, there is no state income tax). Generally you have to pay taxes to the state where you live and any state where you physically earned money. In this case, since you both live and work in FL, I don’t think you will have to file a MD return. Therefore you shouldn’t have any MD taxes withheld. Where your company is located does not make a difference; it all depends on where you are doing the work. If that’s in FL, then you shouldn’t owe MD tax on the income you earn, even if it’s from a MD company.
But do take note: if you withholding is not changed before January 1, 2013, you will have to file a MD return. IF any MD tax is withheld (even if you aren’t required to file a return) you will have to file a MD return, just to get that money back. So talk to your HR department and see if you can get your withholding changed before the new year!
I am going to be working in New Jersey but I live in New York. In case the payroll dept is not sure, Is there anything specific I need to know when completing a W-4. How does this work? Still have to pay double taxes??
Hi Monique,
I bet your payroll department deals with this all the time, as it’s pretty common in the tri-state area. You don’t have to do anything special on your W-4 – just be sure the payroll department knows you’re a New York resident and you want to make sure enough tax is withheld.
When tax time comes, you will have to file two state tax returns: a resident return in New York (which will tax you on all your income) and a nonresident return in New Jersey (which will tax you only on the income you earned in New Jersey). But don’t worry, even though you’re filing two returns, you won’t be double taxed. You will be able to claim a credit for the taxes you’ve already paid to the other state.
I will be taking a job in Louisana, but will reside in Texas. Will I have to pay taxes in Louisana, since I will be living in Texas. Also, my 18 year old has been working part time since graduating high school, but I still pay the majority of her college tution and other living expenses. Can I still claim her on my taxes and if so how? Thanks
Hi Ann,
Yes, you will have to file a nonresident tax return in Louisiana in which you will be taxed on all the income you earned in LA.
As for your son, you can still claim him as a dependent provided he meets the following qualifications:
Hi,
I just moved to California and just took a full time job there at a university in the Los Angeles area. I am also an online professor in the state of Washington (where the university – which is both a physical university and online university – is based) that does not have a state income tax. Do I need to report my income to be taxed by the state of California? I do not have a California driver’s license or license tabs and so I don’t believe I am an official resident. I still have my Washington state driver’s license and license tabs. I will eventually become a California state resident, but all of my work is remote (online). How would you recommend that I proceed?
Thanks,
Dave
Hi Dave,
Everything depends on where you are an official state resident. I can’t make that determination given what you’ve told me, but I would encourage you to read through FTB Publication 1031 [Guidelines for Determining Resident Status] to figure out if you are a resident.
If you decide that you are a CA resident, then you will have to file a CA resident return and pay tax on all of your income, no matter where it was earned.
If you decide that you are still a Washington resident, you will obviously not have to file a WA state return, but you will have to file a CA nonresident return that taxes all of the income you earned in CA. This will include all of the income you earn as a professor in LA as well as whatever income you earned while working remotely while in CA (the fact that the online university is based in WA makes no difference).
So, basically, the only way your residency status really makes much of a difference is if you physically earned income while in WA state (because you would not have to pay tax on this income). But, if all of your income was physically earned in CA, it won’t save you any money to remain a WA state resident.
As a side note, if you do decide that you are a CA resident, and you moved in the middle of the tax year, you will have to file a part-year resident return in CA, to make sure you aren’t taxed on any WA income you earned before the move.