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.
My husband lives in Michigan and is currently working in North Dakota. The company that he works for is based in Minnesota, which has a reciprocal agreement with N. Dakota. When he received his first check stub it showed that there are no Michigan taxes withheld, only N. Dakota taxes. I know that the guys from Minnesota don’t have to pay ND taxes, they continue to pay MN taxes, per the reciprocal agreement. But seeing as Michigan doesn’t have that, should taxes be withheld for both states? We just don’t want to wind up paying big dollars to Michigan at the end of the year.
Hi Kristi,
As long as he’s still a Michigan resident he will definitely have to file a resident return in MI and pay MI taxes on all of his income. This means that it’s probably a good idea to have MI taxes withheld. However, if the current arrangement continues, it won’t necessarily mean he’ll have a massive tax bill at the end of the year. It’s possible taxes are being over-withheld for North Dakota, in which case ND would just transfer some of that money to MI. But again, to be absolutely sure, he should probably withhold for MI.
I have internship in Oklahoma and go to school at Oklahoma State under the non-resident distinction. I live in Texas permanently. I assume I will need to file my taxes as a non-resident here in Oklahoma. Does this mean I will be getting the roughly 4.8% income tax back that was taken out?
Hi Luke,
You might get some of it back – but I wouldn’t assume that you’re going to get everything back.
Starting a new job and my contract states: You acknowledge and agree that, as the Company offices, your supervisor, operations and employees are all in the state of California, you will be considered a California employee and the company will submit payroll taxes for you in the state of California.
I live in Colorado, my office is in Colorado and will have business travel across the US including California. Does the clause from my employer prevent me from filling a non-resident California tax return and a resident tax return in Colorado? Will I have to pay California taxes?
Hi Rodney,
You should ask your employer about this, but it sounds like you will still file as a Colorado resident, and then if you do any work in CA you’ll have to file as a nonresident there. They very well might withhold CA taxes all year long in which case you’ll have to file a nonresident return just to get them back.
thanks…he is probably there 3-4 days a month. does that make a difference
Hi,
I am a student who goes to school in Arizona but my permanent residence is Washington. I recently got a part time job and am in the process of completing my W-4. Will I need to file a tax return for Arizona at the end of the year (2013)? Even if I will not be making enough to receive any refund amount?
Thanks!
Hi Cris,
Whether or not you need to file a nonresident return in Arizona depends on how much you make. If you make more than $5,500 in Arizona (or more than $15,000 overall) then you will have to file a return. And even if you make less than this, you should still file if any taxes are being withheld because you could very well get some of that back as a refund.