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, for the first 2 weeks of 2011 I was living in Virginia, working in DC for a company via a temp agency. The agency is the one who sent my paychecks, with VA state taxes deducted (no DC taxes), and the company’s address is a Georgia address (according to my paychecks). Then I worked in VA for a different company for a few months. In June 2011, I moved to NC and began working there.
Now, when I file my returns, obviously I need to file in Virginia as well as North Carolina, but do I need to file in DC too?? Georgia??
Thanks so much,
Alisa
Hi Alisa,
You are correct that you definitely need to file in Virginia and North Carolina. Normally, you would have to file for the state you worked in, but according to the District of Columbia’s website, it does not sound like you have to file for simply working there. Also, you do not need to file Georgia taxes because you did not earn money in Georgia. Merely working for a Georgia company does not require you to file. Also, I would list the address of the temp agency, not the company, as the temp agency was your actual employer.
Hi,
I am a legal resident of Colorado, but I have lived and worked as a nurse in Arizona since September. I did not make any money in the state of Colorado at all in 2011 so all of my income came from Arizona. I did not ever change my residency (my driver’s license and nursing license are both from Colorado), so I am afraid this may be a problem now at tax time! Do I only file in Arizona or do I have to file in Colorado, too, even though I have no income there? I never owned a house or anything in Colorado, I just went to school, so I didn’t make any money.
Thanks,
Hilary
Hi Hilary,
This depends whether your move was permanent or not. If it was permanent, then you’ll need to file a part-year return in both Colorado and Arizona. If your move was temporary you’ll have to file as a Colorado resident and an Arizona nonresident. FYI, if your move was permanent, I would take steps to switch your residency to Arizona so you can prove your move was permanent. Otherwise, Colorado could try to claim full resident taxes.
Hi!
I live in NYC during the week but work in NJ but my main residence is in Florida where I’m at on the weekends. How does that scenario play-out? Luckily, Florida doesn’t have a state tax but I feel I’m going to get screwed one way or the other.
Thanks,
David
Hi David,
You have to file taxes in Florida as a Resident because you live there, and you have to file taxes in New Jersey as a Nonresident because you earn money there. Unless you earn money in New York as well, I don’t think there’s any reason to file a New York return, based on what you’ve said. Be sure to claim the taxes you paid NJ on your FL return so you aren’t double taxed.
Hi!
My husband and I live in LA. He worked in NC for about a month last year. He has two W-2s, one from each state. State taxes were taken out in NC, so would he also have to file state taxes for NC? I do our taxes, and am not sure how to handle this. Thanks for any help you can give me!
Hi Rose!
Yep, your husband has to file taxes in North Carolina. File California taxes as a Resident, and then file as a Nonresident in North Carolina. Normally you have to file a return for every state in which you live and every state in which you earn money. Just be sure to claim the taxes you pay in the other state, so you don’t get double taxed.
My friend’s daughter just moved to California right at the end of 2011 for a new job. She earned just a little more than $200 in CA before the year ended. The rest of her income is from Arizona, and she considers herself an Arizona resident.
No taxes were taken out of her CA earnings, since it was such a small amount. They did take out SS & Medicare.
Does she have to file a CA state return in addition to the AZ return? Or does she claim the CA money on her AZ state tax return?
Any help is appreciated!
Hi Iris,
Technically, yes, she does have to file a nonresident California tax return as well as her normal Arizona return. When she files her Arizona return she should still claim the taxes she paid in California.