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.
I am paid as a contractor doing consulting onsite in California for a company that is based in Nebraska. MY pay checks have a Nebraska address on them. I live in Nevada that has no state income tax. MY W-9 has my Nevada address. Do I pay taxes on my consulting income in Nebraska because my employer is there or in California because that is the location that I actually do go to when I work. What about work I do from home and send in? is that taxed in Nevada ( e.g. not at all ) or in Nebraska because they pay me?
Hi Viv,
You are taxed by the state where you are a resident, and by any other states where you earn money. It doesn’t matter where your employer is located. In this case you don’t have to worry about Nevada because it has no income tax. You need to file a nonresident return in California on which you will pay taxes just on the income you physically earned in CA. The only scenario in which you would have to worry about Nebraska is if you had NE taxes mistakenly withheld from your pay. In this case, you would have to file a nonresident NE return just to get that money back.
I work from home full time for a company in Colorado. For 11 of the previous months of 2012 I lived in Utah.
As of December of 2012 I have Moved to Missouri.
My employer is taking out UT taxes, but will need to start taking out MO taxes is that correct?
When I file taxes this year I will have to file in Both Utah and MIssouri and then file the MO 2012 FORM MO-NRI correct?
Next year I should only have to file Missouri taxes?
In December I notified them of my move but still they are taking out taxes for Utah instead of Missouri, What do I do next year?
Hi Another Remote Worker,
1) If you have become a Missouri resident (and by extension are no longer a Utah resident) then your employer should stop withholding UT taxes and start withholding MO taxes.
2) Because you moved during the 2012 tax year, you will have to file a part-year resident return in UT and a part-year resident return in MO. As far as I can tell, it sounds like you have to file a normal MO return and then either Form MO-CR or Form MO-NRI. It actually sounds like you might need to file a MO-CR, but I’m not 100% sure. You definitely want to look into that more: http://dor.mo.gov/personal/nonresident/#complete
3) Next year you have to file a resident return in MO. But because your employer is still withholding UT taxes, you will also have to file a nonresident return in UT. Don’t worry, you won’t have a UT tax liability, but you do have to file a return in order to get that withheld money back. It’s important to get them to start withholding MO tax so you don’t have to file two state returns in 2014!
What happens if I live in NY ( where taxes are Ridiculous) and then work for a month in Texas, where taxes are pretty much non existent but my company is taxing me on all the money as if I was in NY ???? Roughly for the month of work it only breaks out to be about 5000 but should I completely be getting taxed from NY ??
Hi Andrew,
Unfortunately, the state where you are a resident has a right to tax all of your income, no matter where it was earned.
Hi
My work address and residence address is in IL and hence my employer withholds IL tax on my paychecks. Also, note that I work from home. Now, I moved to SC and I am still working from home for the same employer. My employer is not aware of my move! Hence it is still IL tax being withheld on my paychecks. How and where do I file taxes? I don’t want to notify my employer because that might create issues with my employment.
Hi Working Remotely,
Did you move during 2012? If so, you have to file a part-year resident return in Illinois and a part-year resident return in South Carolina. Both will tax you on all of your income for the portion of the year that you lived in that state. Since you’ve only had IL taxes withheld and no SC taxes withheld, when you file your SC return, you will be able to claim a credit for the taxes you’ve already paid through withholding to IL. This will ensure you are not double-taxed. In this case IL will probably end up transferring about half of your withheld taxes to SC and you’ll have to pay (or receive a refund) for the difference between total liability and total withheld.
In future years, you will have to file a SC resident return (in this entire answer I’m assuming you’ve become a SC permanent resident, btw) as well as an IL nonresident return. In this case, however, you won’t owe IL anything and you will have to file just so they can get that money back.
Hi Tax Advisor,
Thanks for your help. I actually lived in New York before and commuted to NJ. For years I filed both tax returns (NY and NJ) and got NJ credit back in NY return.
Now I moved to Texas in middle of last year.
I know I have to file NY, NJ and Texas returns (May be not Texas not sure).
with that information, can you please let me know what would be my tax liability?
Thank you so much…
Worker in NJ