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.
Live in Arkansas and work part-time in California. Does California send all my state income tax to Arkansas or keep part of it? and does arkansas send part of the tax withheld back to me?
Hi Ron,
Based on what you’ve said I have no idea where taxes are being withheld, but you will definitely owe taxes in Arkansas (on all of your income) and in California (on the income you earned there). What will likely happen is that the state for which taxes have been withheld will transfer some of that money to the other state after you file. Whether you get a refund depends on whether your total withholding was greater than your total liability.
I live in Missouri and work in Missouri. My wife lives in Oklahoma and received disability benefits there. We filed our federal return Married filing jointly. Will we need to file both a MO and an OK state return? Do we only include my wages on the MO and her disability on the OK?
Hi Daniel,
In this case you and your wife should probably look into filing separate state returns (which you can do even if you filed a joint federal return). You would file in MO and she in OK.
Hello,
I founf this forum very useful. I thought some one can answer my query.
I live in seattle, WA. i work in IT consulting. my payroll runs on company address ( NY) and TAX was withheld based on NY TAX rates. I temporarily got an project accomodation in NJ ( client place) instead of staying at hotel. but I still travel to WA every week.
ideally TAX should be deducted as per WA state ( where there is no income TAX), but TAX was withheld as per my company’s address.
Now, i am wondering how should i file the return and get the TAX paid to NY state. I was not staying any NY anytime and i am paying the TAX to NY of no purpose.
Can someone Kindly help with my situation.
Thank you
RAPA.
Hi RAPA,
If NY tax was withheld then you need to file a NY nonresident return in order to get that money back. However, it sounds like you were in NY or NJ at some point during the year. Remember that even though Washington has no income tax, you still need to file a nonresident return in any state where you earned money.
I live in Georgia and been working there since July 2012. Prior to that I was recieving unemployment form Florida due to my spouses military relocation to Georgia. We are filing married jointly. Georgia says we owe state tax, I’v been only working there for a few months and the unemployment compensation was from a Florida. Why is that?
Hi Kai,
If you are now a Georgia state resident and became one in July then you owe GA taxes. You have to fie a GA resident return that taxes you on all of your income no matter where it was earned.
(Working in Kansas City, Kansas and Living in Kansas City, Missouri)
Hello Tax Advisor,
I see that this topic was covered addressing Jackson, but I would like to obtain my own definitive answer as well. Thank you in advance.
– I will be working in Kansas City, Kansas, but live in Kansas City, Missouri. From what I have gathered I will receive a state income tax credit from Missouri via MO-CR (http://dor.mo.gov/forms/MO-CR_2011.pdf) and will not be liable for those taxes. I will only pay income taxes to Kansas. Is this correct?
– Are there any factors that would lead to me being taxed at a full rate in both states?
– What if I work for an employer which is based out of Missouri, but am moving to a satellite facility in Kansas?
Hi David,
Let me preface this answer with the disclaimer that this is not a ‘definitive’ answer. I recommend speaking to a tax professional who can look at your entire financial situation for a definitive answer.
That being said, you do need to pay taxes in both Missouri and Kansas.
First of all, you need to file a Missouri resident return that will tax you on all of your income no matter where it was earned. Then you will also need to file a nonresident return in KS that only taxes you on the income you earned in KS. Where your employer is located has no bearing on where you are taxed.
Don’t worry, even though you need to file taxes in two states you won’t be ‘double taxed.’ That’s because you will be able to claim a credit for the taxes paid to the other state through (that where MO-CR comes in). What this means is that the taxes you’ve already paid through withholding will be distributed among the states and then you will have to pay the difference if one of them didn’t get it’s share. It does not mean that you won’t be liable for taxes in MO. If you were a resident there you are liable to MO taxes.