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 am a Texas resident. I got a job thru an agency/recruiter who is located in California, but the job with the company is located in Texas where I am working. So, basically, I still live in Texas and physically work in Texas, but I am the payroll with the agency who pays me after they got paid from the company I am working for. Do I have to pay the California Income tax? The agency took the CA income tax from my pay stub. Assume that I still have to pay the CA tax, at the end of the year, if I file the out of state income tax, will I get all of the tax money back?
Thank you for your help.
-Steve.
Hi Steve,
Yes, if they took California tax out of your paycheck, you will have to file a nonresident return in CA. However, because you neither live nor work in CA, you should get all of this money back in the form of a refund. I suggest you contact your employer and explain to them that you are a Texas resident who is living and working in TX. As such there is no need to withhold CA taxes.
I maybe moving to California here in the next few weeks, but am currently living in Florida. If I do go through with the move to California (for a job), will I need to pay CA state income tax for 2013 considering that my income earned while in California will be less than the filing requirements established for all of 2013 (emphasis on income earned in California, since the income earned while living/working in Florida is not subject to state tax) and I will have only been living there for 5 weeks of the tax year?
Thanks for any help!
Hi Jason,
As long as your total taxable California income is less than the filing requirement, you don’t need to file. Total taxable CA income includes everything you earn (anywhere) once you become a CA resident, and anything you earned in CA before you became a resident.
Hello, I am Frank
I currently live and work in FL. and , given a great opportunity to purchase a house in GA close to where some good friends of mine reside, I am thinking of making this investment. I would still reside and work in FL after doing so, just spending occasionally some
time in GA from time to time. Now, given all this confusion about partial residence etc, since I would not be generating ever any income in the state of GA. would I still be under any obligation to file taxes in that state, for simply just owning a house there.
Thanx a bunch..
Frank L.
Hi Frank,
No, you don’t have to file an income tax return for simply owning a house. Depending on how much time you spend there, it’s possible that you could be considered a resident. But I would say that if you spend fewer than 185 days a year there, you won’t be considered a resident and you won’t have to file.
I started an S-Corp in Virginia in 2006 while living here (I’m the sole owner). I am now ready to move back to my home state of North Carolina and establish residency, but continue to run the business from North Carolina. The business is primarily run by managers and and I will do what is needed by computer, with only occasional trips to Virginia for meetings, etc. Can I do that and will I pay taxes in both states?
Hi Samantha,
I strongly suggest you sit down and talk to a local accountant. I assume you can do what you’re suggesting but I’m not entirely sure. As for the tax situation, you would have to file as a resident in North Carolina, which would tax all of your income. Then if you are traveling back to VA and earning income there you will likely have to file a nonresident return there as well.
Side question: will the situation described above change if I were to work as an independent contractor, providing consulting services to the Hawaii firm through my corporation of which I’m the only employee and the owner (sole corporation), still living in Masachussets?
Regards,
Kamil