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.
Tax Advisor –
I have a good one for you. I lived and worked in Alabama for half of the year. I transferred companies and have been traveling and working since in TN, VA, and NC for a new company. I have moved and put my belongings in storage since working for the new company and that address for their payroll purposes is in VA. My identification and registration still says Alabama however. I know that I need to do resident and non-resident returns for every state but since my identification hasn’t permanently switched to Virginia because I am constantly traveling am I still able to put that I am a permanent resident for half the year in VA?
Hi AJ,
Residency is one of the most complicated tax issues out there and it’s going to determine how you file. The problem is it’s often subjective (as I imagine it will be in this case). The first thing you need to do is determine whether you ever became a Virginia resident or whether you stayed an Alabama resident.
Here are the requirements of VA residency: http://www.tax.virginia.gov/site.cfm?alias=ResidencyStatus. You need to figure out if you’re a VA resident. A lot of it will probably come down to whether you intend to establish a legal residence.
If you decide that you are a VA resident, then you will have to file a part-year resident return in AL and VA as well as a nonresident return in the other states where you earned money (although you should note that most will have income/time limits below which you might not have to file, so be sure to check the state tax authority websites).
If you decide that you are NOT a VA resident, then you just have to worry about the resident return in AL and then any of the nonresident returns in the states where you earned money.
You’ll have to figure out if you are a VA resident for yourself, but my guess would be that you are a VA, especially if you don’t have a home or anything in AL.
I worked in Missouri but I live in Tennessee so how do I file?
Hi Darek,
You will have to file a resident return in Missouri that taxes you on all of your income no matter where it was earned. Since Tennessee doesn’t have an income tax you don’t have to worry about it.
Hi!
Just an add-on to my previous questions!
Just figured out that Texas is one of the states that doesn’t have income tax!!! Now I am confused – how can my company withhold taxes for that state??
Hi Tom,
Yes, that’s a big problem. You need to talk to your HR dept. to figure out what exactly is going on with that.
Hi!
My family and I just moved in August 2012 from Hawaii to Oregon. I found a job with a company in California which sends me out every 3 weeks to a different location (different states) to do some work for them. My paycheck lists the company in California but income tax is taken out for the state of Texas because I get paid from there! We are current Oregon residents and I know that we have to file a tax return in Hawaii being the fact that we have been a part-year resident and earned income there. Do I also have to file income tax in Oregon although we do not have any earnings in Oregon. And what about a tax return for the state of Texas? My company obviously deducts income tax for the state of Texas but I have never been or worked there?ANy idea if those states have a reciprocal agreement?
Hi Tom,
You will definitely have to file a part-year resident return in both Hawaii and Oregon. These returns will tax you on all of your income for the portion of the year that you lived in both states.
You will also have to file a nonresident return in every state where you earn money. Since you work in many different states, this could get complicated. My suggestion would be to check the website of the tax authority of each state where you work. Most have a threshold level of income/days worked in that state before you have to file a return.
You should note that even though your company is based in California, you should only have to pay CA taxes if you yourself physically do work in CA. If you did not do work in CA you should not have any CA tax withheld.
Also your claim that Texas taxes are being withheld from your paycheck is very curious since TX does not have a state income tax. Take another look at that paycheck or ask your employer about it because I’m pretty sure that’s impossible. And another thing, you shouldn’t have taxes withheld from a state because that’s where you “get paid from.” You should only have taxes withheld from the state where you live and/or the state(s) where you work.
I live in Ky and work in TN what stae will I have to pay taxes to and will have to file as anon-resident for TN for taxes
Hi Jeff,
If you live in Kentucky (and are a KY resident) then you have to file a resident return in KY that will tax you on all of your income, no matter where it was earned. Now, normally you would also have to file a nonresident return in the state where you earn money, but since Tennessee doesn’t have an income tax, you don’t have to worry about it.