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 was recently told by a forensic accountant (note: not a tax attorney, hence the question) that there was some recent court challenge for the following scenario: living in California but working part time in Texas and being paid for the Texas work via a 1099-MISC. Supposedly, in this scenario, I shouldn’t have to pay state income taxes on the money earned in Texas since the work was performed in Texas and Texas has no state income tax.
Hi TX Question,
I haven’t heard anything about such a change, but I could be wrong.
Hello
I have my permanent address in NJ and I work in NY. Just for one month in Jan 2013, I changed my address to NY and agian changed it to NJ in Feb 2013.
Since my address was NJ, i did not pay much local taxes in 2012, but on my W2 I got my NY address.
Will I ending up paying more local/city taxes, should that be a problem because, NY has higher local taxes than NJ.
Thank you for your time. – Naveen,R
Hi Nav,
I’m confused. If you only lived in NY for one month in 2013 that should not affect your 2012 taxes at all and you won’t owe any NYC taxes. For 2013, however, you may owe NYC local taxes if you were a resident for that month. If you were a resident of NYS for that month, then you’ll have to file a NY part-year resident return which will include the NYC tax for that month. But do check to see if you even qualified as a NY resident since your time there was so short.
In 2010 we lived in New Jersey.. On April 1, my husband moved to Colorado for a job transfer within his company. My children and I stayed in NJ until July 1. MY husbands 2010 W-2 reflects that he earned income in NJ from April 1st to July and income in Colorado from April 1st to July. They claim since his family was still at the NJ address this applies but since he worked in Colorado that applies as well. They will not change the W2. How do we file? We’ve been putting it off trying to find a solution. Thank you.
Hi Collette,
I think the best thing to do in this situation is for you and your husband to file separate state returns, even if you file a joint federal return. Your husband should file a New Jersey part-year resident return covering the period from January 1st to April 1st and then a Colorado part-year resident return covering the period from April 1st to December 31st. Then you should file a NJ part-year resident return for January 1st to July 1st and then a CO part-year resident return from July 1st to December 31st. I’m not 100% sure but this seems like the best option. Obviously the easiest thing to do would just be to sit down with a CPA or other tax expert. If you decide to prepare your state return with RapidTax, you can call 877-289-7580 and explain your situation to one of our tax professionals and they should be able to advise you of the best course.
Hello.
We have a new sales rep who resides in MN and we are in CA. The sales rep will be based out of MN, but will travel through mid-west to follow up on leads. How would we handle it. Do I give the sales rep tax forms for CA and MN? Thank you.
Hi SO,
If she’s a resident of Minnesota then MN taxes should definitely be withheld as she needs to file a resident return. You shouldn’t need to withhold any California tax unless she physically comes to CA to do work, in which case you might depending on how long she is there and how much money she makes. Then she has to worry about filing a nonresident return in every state where she earns money. Most states have a certain amount of time or a certain income limit below which you don’t have to file a return. So she should spend some time on those states’ tax authority websites to see if she has to file.
Your statement , you have to pay taxes to the state where you live, AND to any state in which you earned money, that would be Wisconsin, so do i have to pay Wisconsin income tax, even though I preformed all my work IN Florida?? Thanks for any and all help.
Hi Brian,
If you did not physically travel to Wisconsin then you did not earn money in Wisconsin. If you performed all of your work physically in the state of Florida you do not have to file a WI nonresident return. It doesn’t matter where your company is located. It’s irrelevant.