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.
Hi
I live in Ohio but work in IL . will i be double taxed?
Hi Subu,
No, you will not be double-taxed. You will have to file a resident return in Ohio that taxes you on all of your income, and then a nonresident return in Illinois taxing you only on the income you earned in IL. On each return you will be able to claim a credit for the taxes that you have paid to the other state – this will prevent you from being double-taxed.
Hi, my new husband is an Over The Road trucker and we have recently moved to New Hampshire which is a non income tax state. Does he have to file as non resident in every one of the states he drops a load in? How does that work for a trucker? Thank you!
Hi Pat,
Generally truckers do not have to file nonresident state taxes in the states that they drive through. Most state have special exemptions for truckers. However, to be sure you will probably want to check with the tax authority of every state where he performs work. Some might have a slightly different interpretation, for example driving through vs. loading.
Hello, so I live and work in MA right now which makes my taxes easy, however I am moving to NH. I have an opportunity with a repair company based out of IL. I would be an employee not a contractor or consultant, live in NH, and travel to customer sites within the New England states (NH, ME, MA, CT, VT) to do repairs. Would I be paying IL tax? Do I need to pay ME, MA, CT, and VT state tax?
Hi Nathan,
You would not need to pay Illinois state tax unless you actually traveled to IL to do some of your work. Lucky for you New Hampshire does not have a state income tax, so you won’t have to file a resident return anywhere. But you will have to file a nonresident return in ME, MA, CT, and VT if you earn income there. Most states have a minimum amount of income you need to earn there before you have to file a return. So if it’s only a few thousand dollars in each state you might not have to file, but otherwise yes, you’ll have to do quite a few state returns.
We are in transition moving to a new job in Washington State. Washington has no state income tax. My wife is back in Colorado until our house sells. I have a temporary apartment in Washington State and working in Washington State. Once the house in Colorado sells and we find a new house in Washington, our household will be in Washington State. Until then, my primary residence is still technically Colorado as my car is still registered there etc. Is my Washington State employer obligated by law to withhold Colorado State income taxes from my wages?
Hi Larry,
I’m not sure if your employer is obligated to withhold taxes from your wages, but you’re certainly obligated to pay Colorado tax on that income as long as you are a CO resident. So it would probably be beneficial to you if CO taxes were withheld. That being said, if you will become a Washington resident fairly soon, it might not be worth changing your W-4, you’ll just owe a little to CO when you file next year.
I am trying to figure out my boyfriend’s son’s taxes, here we go:
He actually lived in Ft. Wayne, IN for about 10mos and in OH 2mos, his entire wages were earned in IN, but was only taxed for OH. When I started to do his OH taxes, the iFile site had his address for IN, his W-2 has OH (different city than what he lived for last few weeks of 2012). I believe I understand that he needs to file in OH and IN, how do I figure out what, if anything, he needs to file for local (ie. city, school districts, etc)?
Hi Tina,
Yes, you are correct that he needs to file a part-year return in Indiana and a part-year return in Ohio. I know that Ohio has a more complicated local tax setup than most states, beyond that I can’t really help you. Check out this page from the Ohio Dept. of Taxation to see if it answers some of your questions: http://www.tax.ohio.gov/school_district_income.aspx