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.
Hello,
My permanent address is in California but I attend graduate school in NYC. I just got a part time job and am wondering if I fill out my tax forms with my apt info in NYC or will I only have to pay CA taxes.
Will I have to pay taxes for both?
Thanks
Hi Julia,
It all depends on where you are now a permanent resident. If you are still a resident of CA then you will have to file a CA resident return that taxes you on all of your income no matter where it was earned and a NY nonresident return that taxes you only on the income you earned in NY.
If you are now a permanent resident of NY, you only have to worry about filing a NY resident return.
That being said, you don’t necessarily need to have taxes withheld for both states. As long as one of them are being withheld (probably NY) you’ll be fine. If you do end up needing to file a CA return, you’ll be able to claim a credit for the taxes you paid to NY through withholding.
I live in California and my employer withholds California State income tax for the entire year I worked. However, I spent 73 nights in Washington State on business. State of WA is Zero income tax. Can I get a tax credit back for those 73 nights I was in State of WA meanwhile the income tax in State of CA was withheld?
Hi Tracy,
As a resident of California, CA has the right to tax all of your income no matter where it was earned. So you can’t get any credit just because you did some of your work in Washington.
I am responsible for payroll at a seaonal, family business in Washington. One family member lives in Hawaii, but works in Washington a few weeks per year for this business. As the employer, am I to withhold Hawaii state income taxes from his paycheck?
Hi Deanna,
I’m not sure if you as an employer are required to withhold Hawaii taxes from his pay, but if he’s a HI resident, he certainly has to file a resident tax return in HI. Thus it wold be beneficial to him if you withheld HI taxes.
Hi Tax Advisor,
I recently got married in the summer of 2012 and my wife and I currently are renting in New Jersey. I still work in New York and have residence in New York on my W2. I understand its not a problem to file jointly on our federal tax return paperwork. But as far as state Returns go what is our best option for filing since I still technically work and reside in New York and she works and resides in New Jersey.
Hi Tom,
Even if you file a joint federal return you two can file separate state returns. It sounds to me like you would file a resident return in New York and she would file a resident return in NJ.
I recently took a position in NJ, but am only there Monday -Thursday, and travel back to my permanent home in Tennessee on the weekends. I don’t plan on changing my address to my temporary one in NJ. I am being taxed on the income I make in NJ. Will my company force me to change my address to a NJ address? TN does not have a state tax, and I really don’t care about paying NJ tax on the income earned, but I don’t want to change my residency to NJ. Please help.
Hi LH,
I don’t see how your company can force you to change your address. If your permanent address is in Tennessee you are correct that you won’t have to file a resident return because TN has no income tax. You are also correct that you will have to file a nonresident return in NJ that taxes you on the income you earn in NJ. But I don’t see why your company would force you to become a permanent resident of NJ.