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 Maryland but earn my pay in ny .. My employer wants me to change my w-2 address to show a local address for union locality rules .. What are the tax implications for this? Thanks,c
Hi Carl,
I’m a little unclear about your situation. Do you physically do your work in MD or in NY? If you remain a resident of MD, you’ll have to file there. I’m guessing that you’ll have to file in NY too. At the very least, you’ll have to file as a nonresident to get the taxes that will be withheld back. But if you actually become a NY resident you may have to file as a resident there.
Hi,
Since April 2012, I have been working both a FT and PT job in MD. I rent an apt in MD,as well. However, I still have my home and other property in Louisiana and did not transfer my drivers license or car registration to MD. I travel back to LA for 4-7 days every month but I am no longer employed in Louisiana. How long can I continue to claim LA as my permanent residence? Most of my business mail goes to my LA address. My employers withhold for the State of MD for tax purposes. Is it necessary to change my residental status? Am I okay to file for LA and expect a refund from MD? Thank you.
Please advise
Hi Toia,
1) You can continue to claim LA as your permanent residence as long as you continue to meet the definition of resident. You should find the definition of residency on the Louisiana Dept. of Revenue website and see if you qualify. But based on what you’ve said I think it’s entirely possible you could still qualify as a LA resident.
2) Changing your resident status is up to you, and I think it depends on how long you anticipate living/working in MD. If you plan to be working in MD indefinitely I’d say it’s probably a pretty good idea to just become a MD resident. You should also check out the definition of resident in MD, because I think it’s possible that you could also qualify as a resident in MD (especially if you have lived there for more than 184 days).
3) If you are still a LA resident, you definitely have to file a resident return in LA which will tax you on all of your income. You also have to file in MD. If you are a MD nonresident, you need to file a nonresident return that will tax you only on what you earn in MD. However, if it turns out that you are a resident of MD too, you need to file a resident tax return there as well, which may mean that you will be double-taxed.
I live in Texas but work in Oklahoma and on salary ,do I still have to pay Oklahoma tax since not being an hourly wage?
Hi Michael,
Yes, if you are physically doing work in Oklahoma you need to pay OK taxes on that income by filing an OK nonresident return.
Hi,
I reside in Florida and this past summer I taught an online course for a school located in California. (The students who registered for the class are from all over the US some even residing abroad). Should I pay California state taxes? Thanks! Zed
Hi Zed,
No, you shouldn’t have to pay California taxes. As long as you are a Florida resident and were physically in FL when you performed the work you shouldn’t owe CA taxes.
I just moved to Texas (No State Income Taxes) and work from home. My company is in New Jersey and I will going into the office 4-5 days a month. Do I pay NJ state taxes on all of my income or not at all?
Hi Joe O,
You have to pay New Jersey taxes on the income that you earn while physically in NJ. At the end of the year you’ll probably have to file a nonresident return on all the income you received over the course of the year from those sixty or so days you worked in NJ.