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.
This is so interesting to me. So how does it work if I move from California to Oregon to live (buying an additional house there) half way through this 2013 year but my employer still resides in California. In addition, I plan to rent my old house in California. I hear that too complicates things. From what I believe you are saying I’ll have to pay income taxes to both states, but file a non-resident return in CA then? I think my state income tax bracket is 9.3% in CA and it will be 9% in Oregon. Is this correct and are there other things the state or federal government might additionally tax me on?
Hi Scott,
Actually if you move from California to Oregon in the middle of the year you’ll have to file a part-year return in each state. You’ll owe CA tax on all of your income for that portion of the year that you were a CA resident, and then you will owe CA tax on your CA source income for the period after you move. If you are still commuting into CA to work, this counts as CA income. If you physically perform your work in OR then CA can’t tax it. The income you derive from renting your CA house will also probably count as CA source income. I have no idea what income tax bracket you fall into, and there are numerous things states and the federal government can tax you on.
Hi! I live in NYC and work for a company that is based in CA. I sold some of my employee option stocks. My employer withheld CA taxes and reported the sale of stock to CA. Is this correct? My employer said I have to file a non resident CA return with just the sale of the stock and a NYC return with just the income earned as a NYC resident..
Hi Gus,
Well, the first thing to note is that you now definitely need to file a CA nonresident return because your employer withheld CA tax, whether that was the correct thing to do or not. In fact, I’m not entirely convinced that you actually owe any CA tax. As a nonresident CA can only tax your income from CA sources. According to this page from the Franchise Tax Board: “The gain or loss from the sale of stocks or bonds has a source where you are a resident at the time of the sale.” (More here: https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents_PartYear_Residents.shtml#StocksBonds) I could be missing something, but it sounds to me like this might actually be NY income. I would talk to a tax professional because I’m not entirely sure. But what I am sure of is that you will need to file that CA nonresident return, to get the money back if nothing else.
My employer relocated me from PA to Ohio in August 2012. On my paycheck stub I noticed that they started deducting a city income tax in addition to state income tax. However, now that I have my W2, I see that they continued to deduct PA state income tax for the entire year of 2012, local Ohio city income tax, and no OH state income tax. My W-2 says my entire 2012 salary was earned in PA, but that is not right. Do I have to get a corrected W-2 from my employer? … I have to file an OH income tax return but with nothing withheld, will I be liable for penalties and interest?
Hi Harold,
Yes, try to contact your employer for a corrected W-2, but at this point it’s so close to the deadline that you might not get it in time. If that’s that case, you have two options. You can either request an extension (which you can do here: https://www.rapidtax.com/File-An-Extension/default.aspx) or you can just estimate how much was earned in PA and how much in OH, which might just be the easiest thing to do. Don’t worry about the OH withholding situation. When you file your OH return, you’ll be able to claim a credit for the taxes you paid to PA through withholding. Because you have essentially overpaid PA, it should transfer some of that money over to OH. Just be sure to correct this mistake with your employer as soon as possible.
By treating as MA residents from Apr to Dec, I calculated that we owe MA >5K of tax which was withheld to NJ by my employer based in NJ in error (?) . We will not be able to pay that much before I get the refund from NJ. I am wondering whether you know a solution for that?
I’m going to college in Florida. I have a apartment here also I work part time in Florida. Maryland is my resident state. Do I need to pay state taxes to them since I still have everything Maryland, such has license, registration, etc.?
Hi Ursa,
Yes, as long as you are still a Maryland resident you need to file a MD resident tax return.