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.
I live in wisconsin and work for a client in wisconsin.I am not getting any pay from client. But my employer is in Illinois, get paied from them and my paycheck deducted for illinois tax. How should i file my tax now ? Can i file the tax papers alone in illinois as already deducted. ? Thanks
Hi Susan,
I would have to know more about your situation to say for sure, but it sounds like you shouldn’t be having any Illinois state tax withheld from your paychecks. You get taxed on all of your income in the state in which you live, in this case Wisconsin. Then in other states you get taxed only on the income you earn in that state. It doesn’t matter where your employer is located. You will definitely have to file as a resident of Wisconsin, but I would look into whether or not you have to file as a non-resident in Illinois too. It doesn’t sound like you should.
I’m looking at taking a job in Florida but working remotely from Missouri, where I currently live and work.. I know Florida does not have an individual income tax. Would this have any impact on my Missouri state return if my paycheck would originate in Florida?
Hi Jeff,
You only pay state taxes in the state that you live in and the states in which you earn money. Even though your paycheck will originate in Florida, you will still be earning the money in Missouri. Therefore, you will still file as a Missouri resident exactly as before.
I live in Maryland and work in Delaware. Delaware taxes were taken from my pay. When doing my taxes
this year Md states that I owe over $250 interest for for underpayment. I am totally current on all taxes.
They must be referring to 2011 taxes only.
Please advise.
Hi Theresa,
The deadline for filing 2011 Maryland taxes is April 17, 2012. This means that even if your withholding in 2011 fell short of what you owe, you have until then to pay the full amount. So you are not being charged interest for 2011 taxes. My guess would be that you did not pay your full tax liability for a prior year (in this case most likely 2010) and are now being charged interest. Look back over your taxes from the last ten years to see if there is a year you failed to pay in full. If you can’t find anything, give the Maryland state tax authority a call. It could very well be an oversight on their part.
Hi.. I have a new employee who is working in Louisiana and he lives in Florida, he will stay in an apt while he is working here but he does live in florida.. How should his SUI and State tax be set up in payroll… Thanks!!
Hi Darlene,
Normally, a taxpayer is taxed by his resident state for all of his income and by a nonresident state on only the income he makes in that state. In your employee’s particular case, however, he does not need to be taxed in his resident state because Florida does not have an income tax. Therefore he only needs to pay Louisiana taxes on the income he makes in Louisiana. I’m not sure about the SUI, you’ll have to check with Louisiana’s tax authority.
I live in Texas. I just accepted a job, where I will work 2 weeks a month in Phoenix and 2 weeks at home in Texas. Texas has no income tax. Do I file Arizona tax as non-resident? Do I pay tax in Arizona ONLY for the time I work in Arizona (for example for next 10 month 2 weeks in Phoenix)? or in other words pay Arizona tax for only time I am in Arizona.
Thanks in advance.
Hi Nick,
Yes, you will need to file taxes as a nonresident in Arizona. You will need to pay taxes on all of the income you earn in Arizona – it has nothing to do with the amount of time you spend in the state. But of course, since you just accepted the job, you won’t have to worry about it until next year when you prepare your 2012 taxes.