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.
Dec 1, 2011 I was laid off from a company that had just moved its operations to Colorado and shut down its MN office where I worked and lived. I had already been spending much of the year working remotely from our home in FL so was able to switch our residency to FL effective Jan 1, 2012. In Feb 2012 I finally got my severance and vacation pay and also started getting MN unemployment insurance payments about that same time. Due to some medical issues later in 2012 I ended up deciding to try retirement so didn’t work at all in 2012 after unemployment ran out. My wife also got disability payments throughout all of 2012. Do I need to file any state taxes?
Hi Todd,
Obviously you don’t have to file a Florida return since FL has no income tax. In addition I don’t think you have to file a Colorado or Minnesota return either. MN is pretty clear that it doesn’t tax unemployment compensation of nonresidents: http://www.revenue.state.mn.us/individuals/individ_income/Pages/How_Nonresident_Income_is_Taxed_by_Minnesota.aspx. I’m a little less sure about CO but I don’t think your income falls under CO source income. You can check the list yourself to make sure you didn’t have any: http://www.colorado.gov/cms/forms/dor-tax/348.htm.
Hi,
I have lived in New York City for 5 years. During the past 68 weeks, I have traveled to Chicago every Monday morning for work and have returned back to NY every Friday evening. Which state should I be filing tax returns for? My w2 shows withholding for both New York and Illinois.
Hi Andrew,
It sounds like your employer pretty much got things right with your withholding. Since you’re a New York resident, you need to file a NY resident return that will tax you on all of your income no matter where it was earned. Then you will need to file an Illinois nonresident return. This will tax you only on the income you earned in IL. When you file each return, you will be able to claim a credit for taxes paid to the other state (through withholding in your case). If there’s any discrepancies in your withholding the states will settle up among themselves.
Hello Tax Advisor!
I am a resident of HI. In 2012 I lived in HI till Oct 12. I live in VA from Oct 13 till the end of 2012. My job is in DC which I started on Oct 22. I pay VA tax. This is a permanent move.
I understand I will file in HI as resident, VA as non resident. Do I have to file DC tax too?
Thank you in advance.
Hi Marilyn,
If you moved permanently from Hawaii to Virginia during 2012 then you need to file a part-year resident return in HI and a part-year resident return in VA. Each return will tax you on all of your income (no matter where it was earned) for that portion of the year that you were a resident. You do not need to file a return in DC.
In 2012 I was a student in FL, where I also worked all year. I am still a permanent resident of SC, but did not earn any income in the state.
I began a SC return, and I have $0 of SC taxable income. Do I still need to file just for records?
Hi Donni,
The state where you are a resident (in this case South Carolina) actually has a right to tax ALL of your income, no matter where it was earned. So likely you will end up paying tax on what you earned in Florida. In short, yes you need to file a resident SC return.
Hello,
I live in NY and work in NJ. My employer is deducting from my check NY local tax and NJ state tax only but doesn’t take out for NY state tax. Are they required to take out for NY state tax also? Last year I had to pay a lot of money in April for NYS because they didn’t take out . I asked them to do it many times, but they don’t want to change anything on my payroll. Thank you
Hi Rafal,
I don’t think they have to take out New York state tax, but it would probably be more convenient for you. Also remember that when you file your New York return you will be able to claim a credit for taxes paid to New Jersey, which should transfer some of this money to NY. However, if only enough taxes are being withheld to cover your nonresident liability in NJ, then you will have to cut a check for NY when you file your taxes.