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 resident of California, but later on this year I will be moving to Washington State (has no income tax) or Oregon (has income tax), what is the tax implications I have to be aware of if I live in either Washington or Oregon?
Hi Connie,
Well, first of all, you will have to file a 2013 part-year resident return in California, which will tax you on all of the income you earned during that portion of the year that you were a CA resident. If you end up moving to Washington (and becoming a WA resident) then you will not have to file a return in WA because WA has no income tax. You should note that the state makes up for the lost revenue in other ways, most noticeably a higher sales tax. If you decide to move to Oregon (and become an OR resident) then you will have to pay a 2013 part-year resident return in OR that taxes you on all the income you earned for that portion of the year that you were an OR resident.
I live in FL but travel weekly to Louisiana Monday -Thursday. I work on a Federal Contract on Ft. Polk, any loopholes for Federal work on a Federal installation? I hate taking a paycut to travel for my company as FL has no state income tax.
Thanks
Tony
Hi Tony,
I know that military personnel whose domicile is not Louisiana are not required to file a Louisiana income tax return on the wages earned from the military. I don’t think that includes you, but I’m not sure. Most likely you will have to file a LA return.
What do I do when my permanent address is in NY, but I have been living in MO for the last 6 months? I am on a rotational program for my company, so I only live in Missouri for a year. Should I file taxes with NY, since my permanent residency is still there? Or do I file in Missouri since I work and rent an apartment here?
Hi Megan,
First you need to figure out where you are a resident. I don’t really know about this determination, but these links should help you figure it out.
http://dor.mo.gov/personal/nonresident/
http://www.tax.ny.gov/pit/file/pit_definitions.htm#resident
This is likely going to be a close call with no clear decision.
If you decide that you were a New York resident for the tax year, you will have to file a resident return in New York in which you are taxed on all your income. Then you will have to file a nonresident Missouri return in which you are taxed only on the income you earned in MO.
On the other hand if you determine that you were a Missouri resident, you will have to file a part-year resident return in New York for the portion of the year you lived in New York and then a part-year resident return for the time you lived in MO.
Don’t quote me on this, but I’d say it’s likely that you’re still a New York resident and a Missouri nonresident. But do be sure to check their definitions of residency carefully.
What do I do if I worked in Wyoming in 2010 and claimed unemployment benefits for a lot of the year, live in Idaho. What tax do I have to pay?
Hi Lanitta,
You may have to file a resident return in Idaho that will tax you on all of your income. However, if your income is below the filing threshold, you may not have to file. Check Idaho’s filing requirements to be sure. As for Wyoming, it has no state income tax, so you don’t have to worry about filing there.
I reside in Florida and work from home for a company located in Texas, but headquarters are in Tennessee. How do I treat or file State Income taxes.
Hi Kristi,
You don’t have to file a state tax return at all! Since Florida has no state income tax, you don’t have to file a state return. And don’t worry about Texas or Tennessee. It doesn’t matter where your company is located. You only have to file state taxes in the state where you live, and in the states where you physically earned money. Since that’s only FL for you, you don’t have to worry.