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.
Hi Tax Advisor,
I had asked my employer regarding that but they do not want to withhold taxes because they do not have California Employer #. (The nature of the company is warehousing. A 3PL company provides warehousing four our my employer and my job is to oversee the operations.)
What are my options so I can force my employer to withhold CA taxes on my income?
Thanks.
Hi Larry,
First I just want to note that things will probably end up working out given your current situation. New York will just have to pay the taxes withheld there to California since that is where you should be paying taxes. As CA and NY are both relatively high-taxing states it will probably work out. The major inconvenience for you is having to file a superfluous NY return you otherwise wouldn’t have to file.
As for forcing your employer to withhold taxes I’m really not sure. You might want to contact the CA state tax authority about that one, or maybe a tax attorney.
Hi,
In 2012 I worked and lived in Georgia, until July 7th. I moved to Texas and still am employed with the same company, working remotely from Texas. I just noticed that GA taxes have been taken out of my paycheck the whole time I’ve been living in Texas. I had never seen a pay stub until today when I logged in to get my w-2, thanks to direct deposit. I know I need to file GA state tax since I was a part-time resident, but should I be having GA taxes taken out if I don’t live there anymore? If not, how do I go about filing my taxes with this mistake? Thank You!!!
Hi Melody,
No, you should not be having Georgia taxes withheld from your pay anymore. The only circumstances in which GA should be withheld is if you are still a permanent resident of GA (which it doesn’t sound like you are) or if you are physically doing work in GA (which also sound like it is not the case).
As for filing taxes this year, you will need to file a part-year resident return for GA. This will tax you on all of your income for the portion of the year that you lived in GA. Most likely, because GA taxes were withheld for 12 months when they really should only have been withheld for 6, you will get a fairly large refund. This isn’t guaranteed however, because I have no idea how many allowances you claimed on your W-4, what you tax liability is, etc. etc. but I would say that if all of your withholding was otherwise correct you can expect a fairly large refund – especially since you won’t have to file any income tax is Texas.
Hi,
Can you please help me?! My husband works in Georgia but we live in Alabama. He made 26,600. It says we owe Alabama about $800 but getting a refund from Georgia (almost $700 b/c we had $1300 taken out in taxes and only owed 600). When I filed credit for taxes paid it said we still owe AL over $100 plus we don’t get anything from GA now. Basically they took that 700 refund from GA and put it toward AL and it left us with still having to pay just over $100 to AL….does it sound right? Does it seem I did everything right? I did AL as resident and GA as nonresident. Thanks so much if you can help me!
Hi Bridget,
It sounds like you did everything correctly. You filed as a resident in AL and a nonresident in GA which is exactly what you should have done. It sounds like what happened is that your husband only had GA taxes withheld from his pay when in fact you owe taxes to both GA and AL. You will end up owing roughly the same amount in taxes as someone who lived and worked in only one state, it’s just that your taxes will be divided between two states. At the moment, however, GA has been overpaid and AL has been paid nothing. What happens when you claim the credit for taxes paid to another state is that the state that was overpaid (in this case GA) decides to send some of that extra money directly to the state that was underpaid (AL) instead of having it go through you which would be a massive inconvenience of large refunds and large tax bills for you. $100 doesn’t sound like too large a withholding discrepancy considering this is over the course of the whole year. If you don’t want to deal with this situation next year you could ask your husband’s employer to withhold AL state taxes too, but it sounds to me like everything you did this year is perfectly fine.
Hi,
I work for a company based in NY. I moved here in CA from NY to work at the company’s warehouse. CA is now my home state. i am their only employee in California and they do not have a California Employers ID. They withhold NY Taxes on my income. I know i have to file a non-resident NY return, do i file a California return even though my employer doesn’t report my wages to CA?
Thanks.
Hi Larry,
Yes you do. Since you are a resident of California you need to file a CA resident return that taxes you on all of your income. Since New York taxes were withheld from your pay, you are correct that you also have to file a nonresident New York return. Unless you are physically performing some of your work in NY, you might want to consider asking your employer to withhold CA taxes instead of NY taxes in the future.
Hi,
I am in IT and I live in NJ. My employer is also in NJ, Last Jan 2012, I got a job in NYC as a consultant, which is my workplace currently. So on my payroll, my NJ employer has been withholding/deducting only NJ State tax. When I file my taxes now, should I file for NYC taxes as well? Since I am only a consultant and my employer on my job profile shows is from NJ, I am confused here. The Client pays the Vendor (middleman) and the Vendor pays my Employer. I am a regular salaried employee with my Employer. Please advise.
Also my wife is working in NJ and living with me in NJ. We have a 1 year old. Can she file her taxes with one dependent (family) and I file as a Single? or would you recommend us filing together to get a good return? Which would be legal, please advise.
Thank you for your professional advice on this. Appreciate you doing it for everyone.
Hi Prabhu,
Since you live in New Jersey, you definitely need to file a resident return in NJ that will tax you on all of your income. But since you worked in New York, you will also need to file a nonresident return in NY. This will tax you just on the income that you earned in NY. Don’t worry, you won’t be double-taxed. You can claim a credit for the taxes you pay to the other state.
As for your filing status, if you are married you cannot file as single. Either you and your wife can file together as married filing jointly or you can each file a separate return as married filing separately. Most people find it more advantageous to file as married filing jointly, but in very specific cases it might behoove you to file married filing separately. Do note that if you choose to, you and your wife can file a joint federal return and then separate state returns.