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 am a Florida resident who has taken a temporary job in Ohio. I will be commuting for this job from nearby, from the state of Kentucky, where I own a residence also. Understanding that Ohio will be withholding, does Kentucky have any play in this situation?
Do I list Fl or Ky as my address/residence with my new employer?
Hi Dara,
If you are in fact a resident of Florida, then you only have to file a nonresident Ohio return and you don’t have to file anything in Kentucky. But, be careful. You need to make sure that you don’t actually qualify as a Kentucky resident. According to the Kentucky Dept. of Revenue, “persons who maintain permanent residence in Kentucky (i.e., are domiciled in Kentucky) are considered residents. Persons not domiciled in Kentucky but who live in Kentucky for more than 183 days during the tax year are also considered residents.” You can read more here: http://revenue.ky.gov/NR/rdonlyres/184DC734-C6C6-4B18-BE6A-FFD7940B65DD/0/KyRev740NPforwebFINALfromGW2012.pdf
I don’t know enough about your situation to make this call, but I can tell you that everything depends on where you are a resident. So be sure to check the residency requirements of Kentucky and Florida very carefully.
Yes I work offshore, and my company is based out of texas, I live in Ga, and my company doesn’t hold state taxes out of us, but at the end of the year Ga reaches deep in our pockets for money, I would like to know is there any laws that may help out on the maritime industy?
Hi RTT,
Unfortunately if you are a resident of Georgia, GA is going to tax you on all of your income, no matter where is was earned. As far as I know there are no special maritime industry laws that will help you get out of it. Have you tried asking your company to withhold GA state taxes, in order to take the sting out of it?
Hello,
My permanent residence is in Illinois and work for a company whose HQ is VA. I physically work at a site located overseas. Because my permanent residence is Illinois I paid IL income taxes. I did not work in VA at all. I did not pay VA income taxes. Does this seem to be correct?
Hi LH,
Yep, that sounds good to me. There’s no escaping the IL tax, since you’re a resident, you’re going to be taxed on all your income. And the only reason you would have to pay VA tax is if you were physically working in VA for some reason.
I am a resident of Michigan, but work in NC. The payroll dept. in my company deducts NC state tax withhold, but not for MI.
How I will handle this when filling my state income tax in Michigan soon?
Thanks
Hi Jason,
What this means is that you’ll have to file a resident return in Michigan in which you’ll be taxed on all of your income. Then you’ll have to file a nonresident return in North Carolina that only taxes you on the income you earned in NC. Now what happens when you file two state returns is that you can claim a credit for the taxes you’ve already paid to the other state. In this case, you’ve already paid taxes to NC through withholding. You will then get credit for this on your MI return. I’m not sure exactly what your situation is. Did you work in NC all year? Was any MI tax withheld perhaps before you started in NC? It’s impossible to say what will happen with two state returns, but it’s entirely possible that your NC withholding will cover your state tax obligations. Otherwise you may owe a little to MI after you get done preparing your returns.
Hello, My husband and I are Wisconsin residents. For 2012 my husband worked in MN, and I worked in WI. Previous years our state income taxes have balanced each other out and we didn’t have to make any estimated tax payments to WI. However, I’ve taken a new job in MN and 2013 will have both of our incomes generated from MN. We will be paying MN income taxes throughout the year. Our estimated income will be in the 135,000-140,000 range. According to my research the MN Income tax bracket will by 7.85%. Wisconsin’s income tax bracket for a married couple filling joint will be 6.5%. I keep hearing I will have to pay quarterly tax estimates thoughout 2013. But with the actual taxes being so different why would I have to? Wouldn’t the MN offset the WI income tax? I know I have to be within $200 to avoid any penalty. Let me know your thoughts! Thank you!
Hi MW,
Let me preface this by saying that it’s impossible for me to give an accurate answer based on the information available here. I highly recommend that you visit a local tax professional who can take a look at your entire tax situation and then give you the best information about how to proceed.
That being said, I think that if you two are employees, you should probably have both Wisconsin and Minnesota taxes withheld from your paychecks. And if you are independent contractors (which I assumed you were based on your mention of sending in estimated tax payments) you should probably make estimated tax payments to both states as well. It’s true that WI will give you credit for the taxes you pay to MN so that you won’t be double taxed. But this is the only advice I can give you to stay on the safe side. In all likelihood you will get a refund. Again I encourage you to bring the details of your entire tax situation to a tax professional.