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 lived and worked most of 2012 in California. After my position was eliminated, I was retained at my location and sent to other locations that my company operates in Maryland and Texas. Rather than being paid by the locations out of state, the labor was billed back to my “home” location and they continue to produce my paycheck. I have left my address as the last place I lived in California and they forward my mail to me but I live out of hotel rooms wherever I am assigned and I had my posessions placed in storage back in Florida where I go between assignments as that is where I have my family living.
Given this situation, these are my questions:
1.) Should I be paying California income tax for the time I worked in Maryland and Texas despite the fact that the company still paid me from my California location?
2.) Should I change my address to Florida to reflect where I “live” the few weeks I do not work on assignment even though I do not have a real physical address there (or anywhere else)?
3.) If I do change my address, should my company continue withholding California state taxes?
Thank you!
Hi Keith,
All of this depends on whether you are still a California resident. I don’t really have enough information to make that call, but I can point you in the direction of information that can help you decide: https://www.ftb.ca.gov/forms/2012/12_1031.pdf.
If you haven’t established a permanent residence anywhere else, I would guess that CA still considers you a resident. In that case, you will have to file a resident return in CA that taxes you on ALL of your income no matter where it was earned. Then you will have to file a nonresident return in Maryland that taxes you only on the income you earned in that state.
If it turns out that you are not a resident of CA, then you need to file a resident return in whichever state you are a resident of and then a nonresident return in every state where you earned money (although note that neither Texas nor Florida have an income tax).
I think it does make sense to change your state of residence to Florida, given that Florida has no income tax and CA has one of the highest tax burdens in the country. If you do change your address, your company should stop withholding CA income tax unless you physically do work in CA.
Hi,
I tried to read through the thread and figure my question out, but I wasn’t able to find out all of the information, so here goes! My husband is active duty Army, and we are stationed at Ft. Campbell, Ky. I now work in Tennessee, where they have no state income tax, I live in Kentucky, where they do have state income tax, and I am still a legal resident of Louisiana. We have no plans to become legal residents of Tn/Ky, and now that it is tax time, I don’t know who I am supposed to pay taxes to. Please help! Thanks in advance
Hi Dixie,
First of all, you need to file a resident return in Louisiana. This will tax you on ALL of your income no matter where it was earned. You should take note when you file, however, that LA allows members of the armed services who were stationed outside the state on active duty for 120 or more consecutive days to take a deduction of up to $30,000. I’m assuming your husband is also a LA, but if not you can always file separate state returns.
Next you have to file a nonresident return in all of the states where you earned money. Since Tennessee has no income tax you don’t have to worry about that. Kentucky does have an income tax, but as far as I’m aware, if your only source of income (from KY) is military income, then you don’t need to file a KY return. So it’s actually kind of good luck that you ended up working in TN.
Hi,
my employer is in California (Stanford University) and I live and work in Pennsylvania. My employer is withholding CA state taxes.
How do I file taxes? Do I have to file in both states? Can I pay only CA taxes or do I need to pay PA taxes?
Thanks!
Hi Alessandra,
You need to file a Pennsylvania resident return since you live there. This will tax you on ALL of your income. Then you also need to file a California nonresident return. Based on your description of your situation, you shouldn’t actually owe any CA tax, but since it’s been withheld you need to file in order to get that back. You should consider asking your employer to withhold PA tax instead of CA tax in the future.
I live in Louisiana. I work in Louisiana. Yet, this company whose address is listed in California listed Georgia as the state and paid Georgia taxes. (Did not work or live in Georgia). Also, the state wages were significantly higher than the federal wages. Not sure exactly what is going on and of course payroll keeps routing me to voicemails. What should I do?
Hi Christian,
You know you are going to have to file a Louisiana resident return since you live in LA. However, you will also have to file a Georgia nonresident return in order to get back the tax that was withheld from you. Hopefully, GA will transfer the taxes withheld to LA or just give you a big refund with which you can pay your LA bill. Make sure to talk to your HR dept. to get them to stop withholding GA taxes.
Hi,
I am a graduate student earning a stipend and scholarship in Pennsylvania (I get both a W-2 and 1098-T), but still have my permanent address listed as Maryland where my parents reside. The 1098-T lists my MD address and my W-2 lists my address of residence in PA. Do I have to pay both MD and PA taxes on the stipend I earn?
Hi Anna,
If you’re still a Maryland resident, you have to file a MD resident return that will tax you on ALL of your income, not matter where it was earned. Since you are earning money in Pennsylvania you also have to file a nonresident return in PA that taxes you only on the income you earned in PA.