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 employees that have their home address in Illinois. They work in Missouri and are paid per diem for lodging in Missouri near job. Which state does withholding taxes for this situation? I also have employees that resident in Kansas and work in Missouri with a per diem provided.
Hi Llnd,
Well these employees are all definitely going to have to file in their resident states of Illinois and Kansas so it’s probably a good idea to have those taxes withheld. Since they did work in Missouri they’ll also have to file a MO nonresident return. Whether they should have MO taxes withheld probably depends on how much money they are earning in that state.
Just a follow up: I mean, what do I enter for CT taxes withheld in the CT state return.
Hi,
I read this interesting blog, and appreciate the great info you are providing. I would like a comment on my situation. I live in CT but work full time in NY. All salary is from NY ONLY. My wages on my W-2 are as follows (hypothetical figs)
Box 16 State wages, tips, etc.
NY $90000
CT $90000
Box 17 has only one entry
$ 3500
So which state does this apply to?
If it is NY, do I enter the same value for CT taxes? Or is entering it for CT wrong?
Many thanks for you help !
Hi PSub,
Do you see how box 17 is divided in half by a dotted line? The number entered there will be either on the top or bottom and should apply to the corresponding state in boxes 15 and 16. For example, if New York is the state on the top in box 15 and the $3,500 in box 17 is also on the top then it applies to NY.
You should obviously report this number as taxes withheld on whichever state tax return it applies to. However, when you file the other state return, do not report this number as taxes withheld for that state. Instead you will be able to claim a credit for taxes paid to the other state.
If there’s no number in box 17 for the second state then that means no taxes were withheld for that state.
Hi! My husband work in Washington. We live here in NY. He stays in NY less than 5 months. Can he claims for a part year resident for his NY State Tax? Thank you for the clarification.
Hi Imelda,
Your husband can only file as a part-year resident if he moved permanently from New York to Washington during the tax year. If he’s technically still a permanent resident of NY, and hasn’t changed his residency over to WA, then he has to file a NY resident return.
hi I have a question my daughter attends school in Kentucky and we live in Ohio and this past summer she worked at the school as a summer camp leader… how should I file her state tax…. she technically is not a resident of Kentucky although she lives there for 9 months out the year not including summer as a student on campus…… I tried to file an Ohio state tax return but it wouldn’t accept cause there wasn’t an Ohio state withholding tax number… please advise or should I just leave it alone I mean its only a hundred dollars….. but a hundred dollars to a college student is alot of money please advise….. thanks in advance for your help…..
Hi Andrea,
Ohio and Kentucky have a reciprocal agreement, so your daughter only has to worry about filing an OH resident return. However, most states have income thresholds below which you don’t need to file a return. In OH, for example, you don’t have to file a return if your gross income is less than $11,700. If your daughter only earned $100 all year, she doesn’t need to file.