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. I have been a resident of Illinois for several years, and I have worked in Missouri.I have been filing Illinois (resident) state income tax returns and Missouri (non-resident) returens. In 2012, I only lived in Illinois and worked in Missouri during January.
I moved to Texas on January 30th. 2012. I worked part of the year in Texas and a few weeks in Colorado. Will I need to file Illinois, Colorado and MIssouri returns as a non-resident?
Thanks
Hi Paula,
You will need to file a part-year resident return in Illinois that taxes you on all of your income for that portion of the year that you were an IL resident.
Then you will need to file a nonresident return in Missouri that taxes you just on the income you earned in MO. Then you will need to file a nonresident return in Colorado that taxes you just on the income you earned in CO. Be aware though that some states have income thresholds below which nonresidents don’t have to file a return. Check out the websites of the tax authorities for both of these states to make sure you have to file.
In 2010 I did some consulting work for a client in Indiana, but Utah is residence. When I did the work I was physically in Indiana. Do I need to file an amended return with Utah and pay the taxes to the Indiana Dept. of Rev? Just discovered this and I want to be on the level with my filings. Thank you.
Regards,
Mark
Hi Marc,
I don’t think you necessarily have to file an amended return with Utah, but you definitely need to file a nonresident return in Indiana and report all of that income that you earned in IN.
I live in illinois but work in iowa. I was told im suppossed to be getting illinois tax taken out by h&r block. My bosses say im suppossed to take out iowa.
Hi Tanessa,
Ultimately I don’t think it makes that much difference, as long as you’re having taxes withheld somewhere. You probably know you have to file a return in both Illinois and Iowa, and you will be able to claim a credit for the taxes you’ve paid to the other state through withholding. H&R is probably right that it’s better to have taxes withheld from the state where you are a resident.
I am from Louisiana (own a permanent residence) but working in Ohio (indefinitely), the company I work for is from Louisiana and is withholding Louisiana taxes. My job was initially temporarily displaced to Ohio, but now appears to be a more long term. Should I have my taxes withheld and paid in to Ohio? My tax consultant told me that as long as I do not change my permanent residence then my current situation is fine, is this correct?
Also, if I change my driver’s license to Ohio, does that mean that I forfeit my Louisiana residency even though I own a permanent residence there?
Hi Keith,
Residency is a little more complicated than just where you own a permanent residence. You can take a look at the Ohio requirements of residency here: http://www.tax.ohio.gov/ohio_individual/individual/residency_status.aspx.
If you were a resident of Louisiana all year, then you have to file a resident return in LA and a nonresident return in OH. If you are an OH resident then you only have to file an OH resident return (unless you earned money in LA). Ideally you should have taxes withheld wherever you are a resident. Changing your driver’s license doesn’t “forfeit” your residency in LA, but it is strong piece of evidence that can be used by OH to prove that you were in fact an OH resident and should pay resident taxes.
I work from my home in Florida. My company has no physical presence in Florida. I do not spend anytime in New Jersey and work exclusively from my home in Florida. The company is based in New Jersey. Currently, I am being w/h NJ taxes as a Non-Resident from my salary. I am getting some guidance which tells me that I s/b exempt from NJ w/h if my company applies for a Florida Unemployment ID#.
Is it possible to confirm my findings and also direct me how I would be able to have last year (CY2012) NJ tax w/h returned to me
Thank You in Advance.
Hi Players1,
You are correct that you should not be paying New Jersey tax. As long as you are a permanent resident of Florida and you physically do all of your work in FL you do not owe any state taxes. You should probably ask your company if they can stop withholding NJ taxes from your paycheck. As for your 2012 taxes, you will need to file a nonresident NJ return just to get the money that was withheld back.