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.
What if I lived in IL for January through September. Then permanently moved to WI in October. I have not worked since September and have no WI income yet. Do I just need to file a IL state tax form since 100% of my 2012 income was from IL, even though I lived in WI for 3 months.
Hi KC,
You need to file a part-year return in IL that will tax you on your total income for that portion of the year that you lived in IL and a part-year resident return in WI that will tax you on your total income for that portion of the year that you lived in WI. If all of your income was for during the IL period then your WI liability will be very small, if it exists at all.
Ok, so I am totally confused and I think my work has goofed things up for me. I live in PA and work in NY. They do not have a reciprocal agreement between them and for almost four years I had only NY state taxes payroll deducted throught the year. I was then advised by my HR office that there was a form I could sign that would stop NY taxes from bring deducted and they would begin deducting PA state taxes out of my paycheck instead. Now on my W2 I have about 6mths of NY state taxes that were deducted and another 6mths worth of PA state tax that was deducted. There are other employes that also work here but live in PA and most of them also have this arrangement to only have PA state taxes deducted from their pay checks as well. Is this a smart move and is it ok to have made this change???? How exactly do I files taxes in this situation?????
Hi Kim,
I think the H&R people are probably correct that you should have taxes deducted for the state where you live, but I don’t think it’s going to make a terrible amount of difference. When you file this year, you will need to file a resident return in PA and a nonresident return in NY. On each of these returns you will have the opportunity to claim a credit for the taxes that were withheld by the other state. The states will then settle up between themselves (NY will transfer some of that money to PA or vice versa). You will then end up getting a refund if your total withholding was greater than your total liability or end up paying somewhere if the situation is reversed.
My brother has lived in DC for 2 years now with the Military, NON Active for the year 2012. His home resident state is Ohio. DC as you know does no state taxing, they have not taken out any state taxes for Ohio, but on his W2 they report state wages, which is causing him to owe the State of Ohio over $680. How exactly do I go about filing his return? He has been in the Navy for 6 years now and this is the 1st year this has happen.
Hi Cassie,
I just want to start off by warning you that I’m not overly familiar with military tax issues, so your brother might want to talk with a tax agent who is. That being said, according to the Ohio Department of Taxation, Ohio residents who serve in the military ARE subject to Ohio income tax. However, military servicemembers who are stationed outside Ohio are eligible for a deduction of military pay received for active duty service while stationed outside the state. So it sounds to me like your brother shouldn’t owe that much money, but you can take a look at the requirements here to see if he’s eligible for that deduction: http://www.tax.ohio.gov/ohio_individual/individual/military_service_ohio_taxes_deduction.aspx
Tax Advisor,
I worked and lived in California for part of the year and then moved and worked in Texas in 2012 for the rest of the year. California has a state income tax and Texas does not. When I file my state income taxes for California, will I need to report the amount of money I earned while working in Texas or just the amount I earned while working in California? Thanks for your help.
Hi Mi,
Were you a California resident? If so, you will need to file a part-year resident return in CA that taxes you on all of your income (no matter where it was earned) for that portion of the year that you were living in CA.
If you never became a CA resident, you will have to file a nonresident return that taxes you just on the income you earned in CA.
I moved to Florida from Arizona in February of 2012. I continue to work (remotely) for my Arizona employer. I understand I have to file a part year resident return for AZ. I don’t know if I need to include the entire amount earned in 2012 or only the State Wages indicated in box 16 of my W2. My employer only took out AZ state tax for the time I actually resided in AZ.
Hi Christie,
When you file a part-year resident return, you get taxed on all of your income (no matter where it was earned) for that portion of the year that you were a AZ resident. So that may correlate to the state wages on your W-2, but it may not, especially if you earned money in a different state while you were still a resident of AZ. Or if your employer continued to withhold AZ taxes for part of the year after you moved to FL.
Also note that on most state returns you’ll also have to include your total AGI (even though you won’t be taxed on the whole thing) just to determine your eligibility for certain state credits etc.