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 son moved to Texas for a job. He lived and worked there for 8 months, quit the job and moved back to Mi. Since Texas has no state tax, does he have to file state taxes in Michigan, even though he was living in Texas at the time?
Hi Sandi,
It depends on whether he became a Texas resident. Even if he did, he’s still going to have to file a part-year return in MI because he was a MI resident for some of the year. My guess is that eight months is not long enough to become a TX resident so he’s probably just going to have to file a MI return.
Ok-this could be complicated. We live in California but my husband may take a job in Seattle. It is a high income position (over $1,000,000). We’d live in Washington state full time with our high school child and our other two children go to college in California (we do not need residency for their colleges). We would like to keep our home in California (we would buy another one in Washington state) and use it possibly as a vacation home for the few months of summer. California is our home and we have every intention of “retiring” here. But will be gone indefinitely for the next 10 years. We have a friend (pro athlete) who did the same thing and CA IRS came after him for not claiming residency (even though he lived and worked in Illinois for 9 months of the year) since he was planning to reside in CA when he retired (at age 32). It cost him a significant amount. We just want to make sure that we will no longer be CA residents. I read through the CA tax literature but couldn’t find an answer to this kind of problem with this income. Thanks.
Hi Sally,
If you’ve been doing a lot of research you’ve probably already seen this publication, but it’s all I can point you to: https://www.ftb.ca.gov/forms/2011/11_1031.pdf. Unfortunately, the determination of residency is subjective and if the state disagrees with you (as you know) the consequences can be bad.
I would say that if you spend the majority of the year in Washington, that’s where your high school aged child is, you get a WA driver’s license, register your vehicles there, register to vote there, etc. that you would be a WA resident. All of this is complicated by the issue of “intentions,” but I don’t think an intention to retire in CA ten years from now is enough to keep you a resident of CA for a decade when you’re living somewhere else.
Take a look at Example 5 under Leaving California. I know you’re keeping your home in CA, but I think of all the examples, that’s the one most analogous to your situation. And in that case they were only part-year residents of CA.
Since there’s a good deal of money involved I would check in with a CA-based tax agent just to have a clear answer from a tax professional on the ground.
I lived in and worked in Virginia in 2008 & 2009, upon leaving North Carolina in 2006. I filed taxes for Virginia, however I never changed my Driver License and I voted in North Carolina in the 2008 election. Now, NorthCarolina is coming after me for NorthCarolina taxes for 2008 & 2009 for those reasons. Is this legal?
Hi Coretha,
Yes a driver’s license and a voter registration are two of the major determinants of residency. Ultimately it’s a subjective decision. The tax authority of both of these states should list the sorts of things that determine residency. I would take a look at their requirements and see if there’s anything that can more conclusively prove that you were a resident of VA and not of NC. But just based on what I know I would say they can make a fairly strong case that you never really became a resident of VA.
Hi. I live in Missouri, and might get this job in Kansas. I currently claim married with 4 dependents on my Missouri job right now, and get around $7,000. a year in federal return. And around $300. for state return. If I accept this Kansas job, would I still get a fair return at the end of the year after filing for Kansas and Missouri?
Hi Jackson,
First I should say that your state returns shouldn’t affect your federal refund. It should continue to be what it was (other things being equal). As for your state taxes, you will now have to file two returns but you won’t be “double taxed.” You will have to file a resident Missouri return like you always have. Then you will also have to file a nonresident Kansas return that taxes you just on the income you earned in KS. You will be able to claim a credit on each return for any taxes that were paid to the other state through withholding. Your overall state tax liability should be roughly the same, though this is not a guarantee.
I live in NJ and worked all of 2012 in SC. Only SC taxes were taken out (about $6,600.00).
No taxes were taken for NJ. Am I going to have to pay BOTH NJ and SC ?
Hi Joe,
Yes, you will have to pay both New Jersey and South Carolina taxes, but you won’t be double-taxed. Here’s what’s going to happen. You need to file a resident return in New Jersey, which will tax you on all of your income. Then you need to file a nonresident return in SC that will tax you just on the income you earned in SC. When you file your NJ return, you will have to opportunity to claim a credit for the taxes that have already been paid to SC through withholding. SC will likely then transfer some of this money to NJ. Depending on your situation, it’s entirely possible that you could end up owing more when it’s all over (especially because NJ has relatively higher taxes) but you’re not going to be paying a full 2X as much as someone who just worked in one state.