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 have a residence in NY but my job is relocating to FL. Can the living expenses I incur (rent, car lease etc) living in FL while maintaining my house in NY be deducted from my taxes?
Hi CJ,
You should look into deducting travel/moving expenses but generally the IRS does not allow you to deduct living expenses, especially if your company has permanently relocated to Florida and your stay there is indefinite.
I worked in Illinois and lived in Indiana for the majority of the 2012 year (Jan – October). I now live in Kentucky and work in Ohio. Does this mean I need to file in all four states?
Also, I am a recent college grad. I had two student loans in 2012 that were gaining interest. I paid one of them off, but I’m still paying on the second. Should my loan companies send me information on the interest for my taxes? I haven’t gotten anything from them yet. I’ve heard that this can factor in when filing your taxes.
Thank you!
Hi Cathy J,
Yes, unfortunately it looks like you’ve got four state taxes to file. You need to file part-year resident returns in both Indiana and Kentucky and nonresident returns in Illinois and Ohio.
As for the student loans, yes, you can deduct student loan interest and often it can end up being quite valuable. You should receive a 1098-E [Student Loan Interest Statement] from your lender letting you know how much you can deduct. However, note that they will only send this out if it is more than $600 (even though you may be able to deduct less than that). These days, most lenders will just make this information available online. If you have an online account for these loans, try logging in and you will probably find that information there. But also note that not every student loan you pay off will necessarily have interest you can deduct. Check here for more info: http://www.priortax.com/filing-late-taxes/how-do-you-deduct-student-loan-interest/
My daughter did a paid college internship in Orlando, Fl. There were no taxes taken out. Her residence is New York State. Does she just file in NY (and owe Federal and State taxes)? Does she have to file anything in Florida? Also, she lived in housing operated by the business she worked for and they took rent right out of her check…..she paid around $400 a month in rent and made $8300 (before taxes)….can her rent be used as a write off? ( Since she obviously had to live there in order to do the internship). Thanks
Hi Barb,
Since your daughter is a resident of New York, she most likely needs to file a NY resident return. This will tax her on ALL of her income, no matter where it was earned. She probably needs to file a federal return as well, though I can’t be certain of this. IF she is your dependent then she definitely needs to. Refer to these articles to figure out if she has to file:
http://www.rapidtax.com/blog/do-i-have-to-file-a-2012-tax-return-2/
http://www.rapidtax.com/blog/do-dependents-have-to-file-taxes/
She does not have to file anything in Florida because FL has no income tax.
The IRS does allow you to deduct temporary living expenses in very limited circumstances but I would say in this case probably not, since she went down there of her own volition to do an internship and wasn’t required by her employer to work away from home.
Hi, I have a question, my husband works in the states of Ohio and kentucky, but we live in Illinois, last year we paid Illinois state 500 Ohio state paid us $600 my question is why we have to pay Illinois If we still live here and pay taxes all year to Illinois ?, I don’t get it, and other question, what can we expect this year if he does not have any income from Illinois state only unemployment, thank you
Hi Melissa,
You have to pay taxes to the state where you are a resident on ALL of your income, no matter where it was earned. So as long as you remain an Illinois resident you will have to file an IL resident return.
Dear Tax Advisor- please help! I hired a nanny full time in 2012 for my son, we live in DC and she lives in MD. I have my federal EIN and all of the SS and unemployement issues worked out but trying to fill out W2 am now confused about boxes 15-20 regarding state and local income. We are not withholding federal or state income tax, so do I just leave 15 – 20 blank? If I have to fill in do I fill in DC (where wages were earned) or MD (where employee lives)? Appreciate your help!
Hi New DC Household Employer,
To be honest I really don’t know that much about filling out a W-2 from the employer’s end. On the form W-2 though, it says, “If you have questions about reporting on Form W-2, call the information reporting customer service site toll free at 1-866-455-7438 or 304-263-8700 (not toll free). For TTY/TDD equipment, call 304-579-4827 (not toll free). The hours of operation are 8:30 a.m. to 4:30 p.m. Eastern time.” I suggest you do this just so you get an official answer.