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.
HEY MY HUSBAND LIVES IN FLORIDA BUT WORKS IN ALABAMA AND THEY ARE TAKING OUT ALAMBAMA STATE TAXES. HOW DO WE FILE ARE INCOME TAX? AND WOULD WE HAVE TO PAY MORE TAXES TO ALABAMA ? AND WHEN WE FILE ARE TAXES WOULD WE GET THAT MONEY BACK THAT WE PAID TO ALABAMA?
Hi Vanessa,
Your husband needs to file a nonresident return in Alabama that will tax him on all the money he earned in AL. You may get some of that money back in the form of a refund, but it’s not guaranteed. Everyone owes taxes in the state where they live and in the states where they earn money (unless that state has no income tax, as is the case in Florida).
Hi! We live in FL for the entire year of 2012 and I received unemployment money from Oregon for about 6 months. My husband works in Fl and we file our taxes as married filing jointly. How can we file our 2012 tax? Thanks!
Hi Neri,
Were you and your husband both Florida residents for all of 2012? If so, then you don’t have to file a resident state tax return because FL has no income tax.
But you may have to file a nonresident return in Oregon. Did you receive that unemployment compensation because of an Oregon job? If so, it is considered Oregon source income and you need to file a nonresident return that will tax you just on this income.
HELP!!! Here is my situation. My wife and I own a home in Texas and she works there full time. There is no state income tax there. I have an apartment and work in Colorado that does have a state income tax. So, I have had state income tax being taken out of my pay for the entire year, but of coarse she has not. How do I go about filing for Colorado? Any help or direction is much appreciated.
Hi Kyle,
Where are you a resident? If you are a permanent resident of Texas, then you will have to file a nonresident return in Colorado that taxes you just on the income you earned in CO. But if you are a CO resident, then you will have to file a CO resident return that taxes you on all of your income. Do note that even if you and your wife file a joint federal return, you can file separate state tax returns.
Thank you very much for your time and will check out the link you provided. Have a nice day.
I’m a little confused and it doesn’t take much for that. 🙂
I was involved in a car accident which caused me to relocate to Florida for recovery.I lived in FL for all of 2012. My employer is in DC, but at the time of the accident I resided in MD. MD income taxes were taken out of my paycheck in 2012.
I did my taxes on TurboTax, but have not filed. I didn’t make much money less that $15K and only paid $115 in taxes but getting 10X that back from MD. How am I getting more money back from the state of MD than I paid in taxes. Does that sound right? I filed as a MD no-resident.
Hi Maria,
If you were a resident of Florida during that time you earned the money in question, and didn’t physically earn it in Maryland, then it makes sense that you should get back the Maryland tax that was withheld. But I agree it does sound surprising that you should get 10x that back when you’re a nonresident. You could try contacting the people at Turbo, but my guess would be that they’re probably correct.