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.
Thanks very much. I appreciate your help: you really know your stuff.
Dear Tax Advisor,
I work for an employer based in Washington DC but work from home 3 weeks out of 4 in Georgia. Once a month, I go to the DC office and work at a visiting worker desk for a week. I am paid electronically and into my bank account in Georgia. Two questions: 1) Do I need to file anything in DC? 2) Are any of my travel expenses to go to DC deductible? Thanks.
Hi GW,
From what I can tell based on the District of Columbia’s Office of Tax and Revenue website, you would only have to file a return if you lived in the district for 183 days or more. If you were only there one week a month, I don’t think you qualify. You can check it out here – http://otr.cfo.dc.gov/otr/cwp/view,A,1330,Q,593736.asp
I’m not sure whether you will be able to deduct your travel expenses. According to the IRS, “Travel expenses paid or incurred in connection with a temporary work assignment away from home are deductible. However, travel expenses paid in connection with an indefinite work assignment are not deductible. Any work assignment in excess of one year is considered indefinite. Also, you may not deduct travel expenses at a work location if it is realistically expected that you will work there for more than one year, whether or not you actually work there that long. If you realistically expect to work at a temporary location for less than one year, and the expectation changes so that at some point you realistically expect to work there for more than one year, travel expenses become nondeductible when your expectation changes.” You can read more here – http://www.irs.gov/taxtopics/tc511.html.
Also, I would just note that you can’t deduct any expenses that have been reimbursed by your employer.
My 25-year-old son got laid off from his job and lived with us in his boyhood home from Jan- mid-June. He collected unemployment while he looked for a job. He was hired by an Alabama company who sends engineers around the country doing construction. He worked in Missouri from June to November. He was transferred to Nevada late November and will live there till Sept 2013. He does not own a residence in Georgia but his car has a Georgia tag and his drivers license is Georgia.
So he will file a Georgia and Missouri tax, but will Georgia see him as a resident? He doesn’t have a home here or plan on returning. He will always be moving around every 6-9 months. If he lives in Nevada the majority of 2013 will Georgia want a tax return because he has a drivers license and tag?
Hi Dana,
The difficult thing about residency is that it’s subjective. There are no hard and fast rules. But the fact of the matter is that he has to be a resident somewhere. Either he becomes a Nevada resident or he stays a Georgia resident. The thing about residency is that it often comes down to where you have the strongest ties – and drivers license and plates are part of that. So is voter registration and the location of your permanent address. The state won’t necessarily come after him just because he has a GA license, but it is a piece of evidence supporting the case that he’s a GA resident.
Here’s what he needs to do. Either he decides to remain a GA resident, in which case he will have to file a resident return there as well as a nonresident return in Missouri. Or else he can take steps to become a Nevada resident. But in this case he’s still going to have to file a part-year GA return and a nonresident MO return. Plus he’s going to have to take steps to actually become a NV resident – which would include things like changing his license and voter registration.
If he’s going to be moving around a lot, the easiest thing to do is probably to remain a GA resident and file a nonresident return wherever he works. But then again Nevada has no income tax.
Hi, My husband lives and works in Nevada. HE is a resident of NV but me and the children still live and reside in Utah. We own a home in utah. How do we file our taxes? Can I file in utah and he file with the dependants in NV?
Hi Shari,
The good news is that Nevada does not have any income tax, so as long as your husband is a resident of NV (and he didn’t earn any income in any other state), he doesn’t have to worry about state taxes. Even though you two can file a joint federal return, you can file a “married filing separately” state return in Utah on which you claim your dependents.
My company is based in louisana, all my labore is performed off shore in the gulf of mexico,i live in texas and pay louisana state tax,can i get all that back when i file?
Hi Richard,
I am actually not sure whether working offshore counts as receiving money from a Louisiana source. But one thing is certain: if LA taxes were withheld from your paychecks, you definitely have to file a nonresident LA return. The Louisiana Department of Revenue will determine how large your tax liability is and how much you get back. My guess would be that you’ll probably see most of what was withheld in the form of a refund but I can’t be sure. The best thing to do is probably to contact the LA Dept. of Revenue, your payroll dept., or a local tax agent well versed in offshore income if you want to know more specifically how much you can expect to get back.