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.
In 2011 I worked as a traveler physical therapist and used my sister’s address in in California. My first assignment was in Massachusetts where I worked for 6 months. I left the traveler role and took a permanent position with a hospital in Massachusetts
which then became my state of residence. While working as a traveler PT, residing in CA I received a federal tax break as my job was more than 50 miles from my home. I had my taxes prepared by a service that did not file a CA state return and just filed a MA state return. Subsequently CA has sent me a letter “Request for Tax Return” saying that they believe I need to file a 2011 California income tax return.. From reading some of the previous posts…. I realize that I do need to file a 2011 CA return. Since I have all ready filed a 2011 MA return …… How do I go about correcting this and avoid double taxation? Will I need to file an amended return for MA?
Hi Jamie,
Yes, you do need to file a California resident return. As long as that was your state of residence and your permanent home, you need to file a return there, even if all of your income was earned somewhere else.
What you need to do for Massachusetts depends on HOW you filed there. If you filed as a nonresident then you shouldn’t need to amend that return. You can claim a credit on your CA return for taxes that were withheld by MA. This will prevent you from being double taxed. However if you filed in MA as a resident (when really you were still a resident of CA) then yes you do need to amend your return so that you are filing as a nonresident.
I am currently living and working in Tennessee for the summer as an intern. I am from Louisiana and go to school in LA and will be returning to LA in August. How should I file taxes in this situation? Also if in this scenario I have to pay LA income tax then what would happen if I took a job in TN and moved out of LA to start work in December/January, would I still have to file LA taxes?
Hi Nathan,
As long as you are a Louisiana resident, you have to file a LA return and pay taxes on all of your income, no matter where it was earned. Luckily for you Tennessee doesn’t have an income tax, so you don’t have to worry about that. If you took a job in TN and moved there, you would have to file a part-year resident return in LA paying taxes on all your income for that portion of the year that you were a LA resident.
We are a construction company based in Kentucky. We have jobs that are in Kentucky and Tennessee. When a person lives in Tennessee but works in Kentucky, do you withhold Kentucky taxes? When a person lives in Tennessee and our job is in Tennessee, do they pay Kentucky taxes? Asked the Kentucky Department of Revenue and they stated that both circumstances would pay Kentucky taxes. Is this correct?
Hi Terri,
It sounds to me like Kentucky taxes need to be withheld in the first case but not the second. In the first case, that person is a Kentucky nonresident and needs to pay KY taxes on all the income they earned in KY. Clear enough. But in the second case, if they are a Tennessee resident and are working exclusively in TN, then you should not need to withhold KY taxes. A TN resident should only have to pay KY taxes if he is working in KY. But then again I don’t want to tell you to disobey the Kentucky Department of Revenue. You might want to call back and speak with someone else just to clarify.
I live in Delaware and work from my home office in Delaware. My company is in Pennsylvania. They have been only taking out PA taxes. And because Delaware has a higher rate I have been oweing Delaware each year. I was told that this year I had to pay a penalty to Delaware for not having enough withheld during the year.
Because I live and work in Delaware – should they only take out Delaware taxes and not PA taxes.Or should they take out for both sates? I am told that Delaware does not have reciprocity with any state. Withholding is only required in the “duty assigned state”, (Is this PA or DE?)
Hi Jennifer,
You’re correct. They should only be withholding Delaware taxes and they should not be withholding Pennsylvania taxes at all unless you physically go to PA to do work.
I live in Tennessee and have no interest and dividend income. I work in North Carolina in a Federal Government job. Do I need to file State Income Tax in NC.
Hi Mark,
Yes, most likely you need to file a North Carolina nonresident return, though it depends on how much you make exactly. You can see the filing requirements here: http://www.dor.state.nc.us/taxes/individual/filing.html