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.
My brother in-law lives in Maryland. His company just changed and they will no longer take out Maryland taxes but will now be taking out massachusetts taxes where they are no located. They gave him to option not to have them withhold any massachusetts taxes but said he should becasue he would get it all back..We have tried to research this but are no able to find the answer. He will still have to pay Maryland state taxes right?
Hi Karen,
Yes, if he’s a Maryland resident he still has to file a MD resident tax return that will tax him on all of his income. But since he has had Massachusetts tax withheld he will also have to file a MA return. Since he neither lived nor worked in MA, he doesn’t actually owe any MA taxes. But when he does his MD taxes, he can claim a credit for all of the taxes that MA withheld. Essentially what will happen is MA will transfer all of the taxes withheld there (where he has no tax liability) to MD (where he does). Your brother will only have to pay the difference (or receive a refund) for the difference between his MD tax liability and his MA withholding.
Hi Tax Advisor,
I moved to Texas in mid of 2012 and work for a company in NJ. Most of my work is remote and I go to NJ once in a month.
Given that Texas has no state income tax what is my state tax liability?
Appreciate your help. Great blog.
Worker in NJ.
Hi Worker in NJ,
Your tax situation is actually a little tricky. Did you live in New Jersey before you moved to Texas? If so you will have to file a part-year resident return in New Jersey. This will tax you on all of your income for that portion of the year that you were a NJ resident.
NJ also has the right to tax you on all income earned in NJ even if you are a nonresident. So you will need to file a NJ nonresident return that includes only the income you earned in NJ after you ceased being a resident.
I was a little unsure about this (because it seems absurd that you should have to file two NJ tax returns) but I found this line in the return instructions: “Both part-year resident (NJ-1040) and part-year nonresident (Form NJ-1040NR) returns may have to be filed when a part-year resident receives income from New Jersey sources during the period of nonresidence.” Here’s the link if you’d like to dive in yourself: http://www.state.nj.us/treasury/taxation/pdf/current/1040i.pdf
My daughter (20 years old) worked as an paid intern for Disney in Florida from May 2012 to January 2013. Her residence is in New York state. 1- On her W-2 there are no state or federal taxes taken out. 2- Do her taxes get filed in Florida as a non-resident? 3-Does she have to file in New York ? Thanks
Hi Barb,
Your daughter is going to have to file a resident return in New York. Even though she worked in FL, the state where you are a resident (NY) has the right to tax all of your income, no matter where it was earned. However, she doesn’t have to file in FL because FL has no income tax. Since no taxes were withheld from her wages, it is likely that she is going to owe NY state some money, but this depends on how much she earned, your situation, etc.
Hi Tax Advisor,
I work in the Gulf of Mexico, the company I work for is out of Louisiana, and I am a resident of Florida. Since I am not working in a “State” but in international waters, how should I file ?
Thanks
Hi Trevor,
The easy part of this question is your resident return. Since you’re a resident of Florida (which doesn’t have an income tax) you don’t have to file a resident return anywhere.
The tricky part is figuring out whether you have to file a nonresident return in Louisiana. Since you aren’t physically earning your money in LA, but instead in international waters, it sounds to me like you don’t have to file a nonresident return in LA. But to be honest I’m not 100% sure. I urge you to talk to a local tax agent based in the gulf who deals with these sorts of situations frequently because honestly I don’t know.
If you are a resident of New York but ONLY worked in Tennessee and Alabama, do you have to file INCOME Taxes in NY even though no income was earned there? I already realize I have to file INCOME Taxes, as a non resident, in AL and TN.
Hi Dozer,
Yes, you have to file a resident return in the state where you are a resident, no matter where you earned your income. So in this case you do have to file a New York return, assuming that you were actually a resident.