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.
Hello,
I live in MA. I work as a contractor for a CT based company. My contract job is in MA, while my company is based in CT. My W-2 shows that I have been paying tax for CT. NOT in addition to MA, just CT. Is that right? If so, how should I file my tax? I also have a W-2 for my on-campus job as a student earlier in the year, it is for MA. Please suggest what I should do!?
Thanks!
Hi Darsh,
You need to file a resident return in the state where you are a permanent resident, in this case Massachusetts. Normally, you would NOT need to file a Connecticut return as long as all of your work was performed in MA (the location of the company is irrelevant). However, because CT taxes were withheld from your pay, you do need to file a CT nonresident return in order to get that money back (which will most likely come in the form of them transferring it to MA). Ideally, CT taxes should not be withheld from your pay at all (as long as you aren’t doing any work there) and MA taxes should be withheld instead.
Hi,
Here’s my tax situation. I am a non-resident alien in the US. My last employer was in Texas but I used to work from Virginia (Jan 2012 – AUg 2012). Because of the same reason my employer did not withheld any Viriginia state tax from my paycheck. My question is, being a non-resident alien, do I need to file Virigina state tax return for income from Texas? I am neither Texas resident nor Virginia resident (F-1 student Visa). Please let me know.
Hi Arpit,
Texas has no state income tax so we don’t have to worry about that. The only question here is whether you have to file taxes in Virginia. Here what I found on the VA Dept. of Taxation Revenue:
“A resident or nonresident alien is subject to the same Virginia residency provisions as all other filers. If you are a resident or nonresident alien required to file a federal income tax return, and you meet the definition of a Virginia resident, part-year resident or nonresident and other filing requirements, you must file a Virginia return, unless exempted from the requirement by federal treaty.” You can read more here: http://www.tax.virginia.gov/site.cfm?alias=ResidencyStatus#ALIENS.
What you need to do is take a look at the definition of a resident on the VA website and figure out whether you qualify as a resident (according to their definition. If you DO qualify as a resident, then you need to file a VA resident return. If you DON’T qualify as a VA resident then you need to file a VA nonresident return.
Thanks for your quick reply!
My main question was if the work I did physically in NY counted as work “in” NY, since even though I was physically in NY, I was in a sense “telecommuting” and working for a company in CA. From your response, it sounds like it is just the physical location that matters?
Thanks!
-Tom
Hi Tom,
That’s correct. Any work you do physically in New York is considered NY source income. The location of the company is irrelevant.
Hi,
I still maintain CA residency (list my permanent address there, vote there), but go to school in NY (and live in NY as well). I work part time for a company also based in CA. Sometimes I work remotely from my residence in NY, and other times I fly back to CA and work onsite for the company. Should all of the work I do for the CA company be taxed in CA? Or does the work I do remotely from NY need to be taxed by NY, and then that payment deducted from the total tax I owe to CA, my state of residency?
Thanks!
Hi Tom,
Since California is your state of residency, they have the right to tax ALL of your income, that earned in CA as well as NY. This means you have to file a CA resident return.
But since you earned money in NY, you also have to file a NY nonresident return. This will tax you just on the income you earned while physically in NY. Then to prevent being double-taxed you’ll be able to claim a credit for taxes paid to the other state.
Hi,
For all of 2012 I lived in North Carolina and for part of the year I was receiving unemployment from New Jersey (I lived in New Jersey for most of 2011 and moved back to NC in August of 2011) until about August of 2012. I am trying to figure out how to best file because I keep getting an amount that I owe NC but I think that they are taxing my Unemployment. I also withheld federal from Unemployment. What should I do?
Hi Mike R,
Since you moved back to North Carolina permanently I’m going to assume that you are now a NC resident. If that’s the case, you need to file a resident tax return in NC that will tax you on ALL of your income no matter where it comes from. Secondly, you need to file a NJ nonresident return if you received NJ source income. I’m not sure if unemployment constitutes NJ source income, but if it does you will have to file.