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.
Thank you for the explanation. Sounds that it is acceptable to file PT residency return with NJ from Jan to Mar, and with MA from Apr-Dec (and my husband files non-residency NJ return for income during Apr to Nov). We will choose this option.
Now the problem is that my company (based in NJ) withheld NJ state tax only for my income up to Nov by error – do you think that we will have trouble to get those tax refund from NJ and then pay MA? I am worried that we pay the income tax for my Apr-Nov income to MA, but could not get the refund from NJ. Any special procedure or form to get this kind of refund from one state to pay another state?
Hi Jane,
When you file a state return you’ll be able to claim a credit for taxes paid to other states. So on your MA return you should be able to claim a credit for the taxes you paid to NJ through withholding and vice versa. What usually ends up happening is if you overpaid one state, they will just transfer some of that money to the other state that didn’t get enough and then you’ll either owe the difference or get it back in a refund.
Hello,
I am a full time resident of the Aloha State of Hawaii, my company is based in Colorado; I work over the Internet from my home in Hawaii. I receive a W-2 from my company in Colorado; I do not travel/commute to Colorado at all to work. Which State do I file taxes in?
Thanks
Hi Billy,
If you are a permanent resident of Hawaii and you earned all of your money in HI, then you only have to worry about filing a HI resident tax return. It doesn’t matter where your company is located. As long as you were physically in HI when you did all of your work you only have to file in HI. The only scenario in which you would have to file for Colorado would be if you had flown there to do some work.
Hi, I lived in and worked in Texas (no income tax state)last year, and moved to ohio exactly 6 months into the year. Then I lived in and worked in ohio for the rest of the year. Now that I’m filing my state return, I filed only for ohio but I need to show my texas earnings because I’m owing more by not showing texas earnings. Where would I put that on my ohio return? What do I have to do in this case pls help
Hi Ish,
You should be filing an Ohio part-year resident return that indicates that you were only an OH resident for six months of the year. This will tax you on ALL of your income for that portion of the year that you were an OH resident. If all of your Texas income was earned before you moved to OH, then you shouldn’t have to include it at all.
I started to work in MA in April 1st 2012, and listed our house in NJ for sale in Apr 1 2012 (and we bought a house in March in MA with intention to move to MA and to change my residency to MA). Our house in NJ was sold on early Nov. During Apr – Oct my husband was still working in NJ – thus we did not change our driver licenses (since our cars were insured by a NJ insurance company only covering address in NJ) until Nov 1 when we finally moved to MA.
We will need to file part-time residence returns for both NJ and MA, and also NJ non-residence return for my husband’s income in NJ, right? If that is correct, should we treat April 1 as our residency change date? Or Nov 1 as residency change date? Or we need to have different residence start dates (April 1st for me and Nov 1st for my husband)?
Hi Jane,
The problem with residency is that it’s kind of subjective. It’s up to you to determine when each of you became a Massachusetts resident by spending some time on the Massachusetts Department of Revenue website. If you determine that you became a MA resident on April 1st and your husband became a MA resident on November 1st, then you two will most likely need to file separate state returns. You would have to file a NJ part-year resident return for Jan 1st-April 1st and a MA part-year resident return for April 1st-December 31st. Then your husband would have to file a NJ part-year resident return for Jan. 1-Nov. 1 and a MA part-year resident return for Nov. 1-Dec 31.
On the MA Form 1-NR/P Instructions it says, “please not that a joint Form 1-NR/PY is not allowed unless each spouse is reporting income for the same resident or nonresident period.” This pretty much precludes filing a joint return. You can find it on page 8: http://www.mass.gov/dor/docs/dor/forms/inctax11/f1-nrpypdfs/nrpy-instructions.pdf
Alternately, if you determine that you did not become a MA resident until Nov. 1st, then you and your husband could file joint part-year resident returns in NJ and MA and then you alone would have to file a nonresident return on the income you earned in MA before Nov.
I am relocating to Charleston, South Carolina. I work for an internet based company. We are based in Michigan. We have customers currently all over the country. I am primarily a sales rep. My income is based on sales. With the company in Michigan and me living in SC how will the payroll and taxes work?
Hi Daniel Smith,
Are you living in Michigan now? If so, you will have to file a part-year resident return in MI which will tax you on all your income for the portion of the year that you lived in MI. Then you will have to file a South Carolina part-year resident return that taxes you on all your income for that portion of the year that you lived in SC.
You say you work for an internet company, so does that mean you work from home? If so, you should be fine with just these two returns. If you traveled to any other state and did work there you would have to file a nonresident return for the work you did there.
After you move to SC, you don’t have to worry about MI taxes. The location of your company is irrelevant and you are not taxed in the state where your company is located if you didn’t live there and didn’t do any work there. If you fly back to MI to work that’s a different story, but as long as your in SC when you’re actually performing the work, MI shouldn’t tax it.