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 would like to add to the previous query that – the company said W-2 will have NY taxes taken out. So if i file as a non-resident of NY, would i get the money back? Thanks.
Hi Neeta,
Yes, you should get this money back, assuming you did not actually do any work in NY.
Hi,
I live in new hampshire (where there is no state tax). My parent company is based out of NY but client is in Mass. I will be working from home(NH). In this case, will I need to pay any state tax? Do i need to ensure what they put as project address or anything on W-2…?
Thank you for your help.
Hi Neeta,
You shouldn’t need to pay any state tax provided all of the work you did was physically in New Hampshire. If you traveled to New York or Massachusetts and earned income while physically in these states then you may have to file nonresident returns there. You may also have to file returns there if your company mistakenly withheld taxes there, but in this case it will only be to make sure you get the money back. On that note, I would make sure they have your address as being in NH.
I live in NY and work in NJ. This is my first year working in NJ. I am paying taxes for both stated and its killing me. When I file how will I get my tax $ back from NJ?? or do they just apply for NY??? Please assist thank you in advance!
Hi Oleg,
Well, you are going to owe taxes to both New York and New Jersey. You will have to file a resident return in NY that taxes you on all of your income and a nonresident return in NJ that taxes you on the income you earned in NJ. When you file these state returns, you will be able to claim a credit for the taxes that you have already paid through withholding to the other state. This will ensure that you are not double taxed.
Hello,
My wife is employed in CA and receives her paycheck. However, she lives in Pennsylvania. Should she insist that CA taxes are not deducted from her payroll? I understand that she has to PA state tax anyway and then either do not pay CA state tax at all, or have it deducted and later on returned back to her using CA non-resident filing form? Thanks!
Hi SoCal,
Yes, if you wife is a Pennsylvania resident she most certainly has to pay PA taxes. She will have to file a resident PA state return that taxes her on all of her income, wherever it was earned.
As for California, it depends on whether she is physically doing her work in CA. If she physically travels to CA and thus earns this income in CA then she has to file a CA nonresident return that will tax her just on the income she earned in CA. If she works remotely from PA and never actually goes to CA, then she does not have to file a nonresident CA return and there’s no reason to have CA taxes withheld. If they are withheld, they she will have to file a nonresident return just to get them back.
I am living in ct and will be working and staying in ny for 5 days a week, do I pay tax in both states?
Hi Bing,
Yes, most likely you will have to file as a resident in CT and as a nonresident in NY. But check the residency requirements of both states carefully. If you are staying in NY for that many days, you might actually qualify as a NY resident.