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 live in New York. I worked the entire year 2013 in Massachusettes. All my deducted state tax went to Mass. I did not pay any taxes into NY. I do not own my home, I rent. I’m short form tax return, no itemized deductions, standard only. Do I fill out 1 form for NY? Or for Mass? Who do I pay my taxes to at the end of all this? Can I use all the taxes I paid into Mass for both states if I need to pay both? Thank you.
Hi Pete,
I’m going to assume that since you live in New York that you are a NY resident. In this case, you will have to file a NY resident return that taxes you on all of your income no matter where it was earned. You will also have to file a nonresident return in Massachusetts that taxes you only on the income you earned in MA. When you file your NY return you will be able to claim a credit for all of the taxes already paid to MA through withholding and the two states will likely divide that amount among themselves.
I live in and am a full time resident of West Virginia, work at a central office in Kentucky, and paid by a company headquartered in Ohio. In 10 years I have never filed a Kentucky non-resident form, but this year’s tax software wants me too. My paycheck deducts WV taxes and local municipality (KY) taxes. The latter are recovered through a form submitted to the city clerk’s office. Do I really have to file a non-resident form even if the company is already charging the right state the taxes?
Hi WVOHKYQuestion,
You need to file a resident return in the state where you live and a nonresident return in every state that you earn money.
In this case, you need to file a West Virginia resident return that will tax you on all of your income no matter where it was earned. However, because you work in Kentucky you also need to file a nonresident KY return that will tax you only on the income you earned in KY. You probably should have been doing this the entire time you worked in KY.
Hi,
I lived in NY for the first 6 weeks of 2012 then moved to NV. I work from home for a company located in NY. I know NV has no state income tax. I am wondering what I have to do as far as filing taxes in NY. My employer stopped taking NY taxes out of my paycheck after I moved to NV. He said I didnt have to pay NY taxes anymore since I moved. Is it true that I only have to pay taxes on the money I earned in NY for those first 6 weeks of 2012?
Hi Jeanne,
Yes, it’s true. You have to file a part-year resident return that will tax you on all of your income for the portion of the year that you were a NY resident (those first six weeks). But after you moved to Nevada, you don’t owe any NY tax on that income as long as you didn’t physically do any work in NY.
My daughter lives here in N.J. but worked for a short time in Florida. I know Florida has no state income tax, but does N.J. require her to pay state taxes on her earnings from Florida.
Hi Kathryn,
If she was a resident of New Jersey that whole time, then NJ has a right to tax her on ALL of her income, no matter where it was earned. So yes, she NJ will tax her on the income she earned in FL.
I have a question regarding state income tax. My husband accepted a job in AL, moved and started working Feb 2012. I stayed behind in GA for about 35 days to re-lease the house we were living, and then joined my husband. He lived in a hotel until I and our household goods arrived in AL. His company withheld income tax for GA until we rented the new AL house. We moved into our new home March 30, 2012. So do we owe GA that one month’s salary, even though it was earned and he lived, in a hotel, in AL? I didn’t work in GA. so we generated no income in GA during that time period. Thanks so very much!
Hi Kris,
You have to file two tax returns here: a Georgia part-year resident return and an Alabama part-year resident return.
For the portion of the year that you were still a GA resident, GA has the right to tax ALL of your income no matter where it was earned. So the company was correct to withhold income tax for GA until you both moved into your new permanent residence in AL because you were still GA residents at the time (even though that income was earned in AL).
So when you file your returns, your GA return will basically tax you on all of your income from Jan. 1 to March 30. Then your AL return will tax you on all of your income from March 30 to Dec. 31.