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.
My family lives in Texas and I work and live in New york(I changed my driver licence). I come back twice a year to visit my family. I am trying to file the taxes. I am not sure what is the best way to file: married jointly or married file separatedly? Other question: in 2011 year, I worked half year in new york and worked half year in Texas. When I did my tax return by doing Turbo tax, somehow, I was taxed whole income for new york income for state tax return. I wonder if I can claim half year income earned from Texas back this year? Thanks.
Hi Mei,
Even if you and your spouse file a joint federal return, you can still file your state returns separately. So in this case it might make sense to file your federal return married filing jointly and your state return married filing separately.
As for 2011, there’s no way you can correct this mistake by doing anything to your 2012 return. If you need to file something on a 2011 return you will have to file an amended 2011 return.
I work in California as an independent contractor and live in New York. How do I file? Thank you!
Hi Leah,
You need to file a resident return in New York that will tax you on all of your income no matter where it was earned. Then you need to file a nonresident return in California that will tax you just on the income you earned in CA.
I moved from NY to CA in March 2012 to take a job, while my unemployed wife and daughter remained in our home in NY. My employer withheld Federal and CA taxes. All of the income I earned in 2012 was related to the CA-based job. I intend to file jointly and will assume (hope) I can file partial resident returns for both CA and NY. Is that correct?
Hi David,
If you moved permanently to California, then yes you will need to file a part-year resident return in New York (which will tax you on all of your income from Jan-Mar) and a part-year resident return in California (which will tax you on all of your income from Mar-Dec). But can only do this if you became a permanent resident of CA. If you are still a permanent resident of NY, then you need to file a resident NY return that will tax you on all of your income as well as a nonresident return in CA that will tax you on the income you earned in CA.
Thank you for your helpful post! I was living and working in NYC until October 1st of 2012, following which I moved to Boston. I am still getting paid by my employer in NYC and will continue to do so (I don’t have any Massachusetts sourced income). Does this mean that I file my taxes as a part year resident of New York and NYC, and part year resident of Mass? Also, can I then claim an exemption for taxes paid in those 3 months to Mass on my NY and NYC tax return?
Thanks for your help!
Hi Ashesh,
If you moved permanently to Massachusetts, then yes you should file a part-year resident return in New York (which includes NYC) which will tax you on all of your income from Jan. 1 to Sept. 30. Then you also need to file a part-year resident return in Massachusetts that will tax you on all of your income from Oct. 1 to Dec. 31. You will be able to claim a credit for any taxes paid to the other state, but I suspect that if you were a Massachusetts resident for those three months, then those MA taxes were correctly withheld.
I live in Idaho and worked half year there and other half in north Dakota.. keeping residency in Idaho.
How do I file my taxes? For state? And federal is with both States w~2’s correct?
Hi Sophie,
You need to file a resident return in Idaho that will tax you on ALL your income no matter where it was earned. Then you also need to file a nonresident return in North Dakota that will tax you only on the income you earned in that state. And yes, your federal return includes income from both states (as well as anywhere else).