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 North Carolina and work in South Carolina. How should i be filling? Should I be setting money aside?
Hi Mabelline,
For the state you are living in, North Carolina, you will file a resident return. For the state you are working in, South Carolina, you will file a nonresident return. A nonresident return only taxes you on the money you earned in that state.
I’m a W2 employee of the company, how does that factor into the equation?
We currently live in California, I work for a NY based company as a telecommuter. They do have a physical presence in California I however do not work in that office.
We are moving to Idaho next year, HR has said they are not equipped to pay Idaho taxes and they would continue to treat me as a California employee.
Do I file a non-resident return with California to get back what was withheld from my paycheck then pay quarterly taxes to Idaho to avoid the under payment penalties?
Hi Keith,
For the state you are living in you will file a resident return. For the state you are “working in”, meaning the state listed on your work 1099, you will file a nonresident return. A nonresident return only taxes you on the money you earned in that state. It sounds like you will need to file resident return for Idaho and a nonresident return for California.
Also, for the year you move, you will file a part-year resident return. A part-year resident return is for people who moved during the tax year. You will file a part year resident return for California and a part year resident return for Idaho. (Along with the nonresident return for California). We actually have an article about that. Here is the link to help you learn a bit more about this topic; http://www.rapidtax.com/blog/filing-taxes-in-two-different-states-what-you-need-to-know/
Hope that helps. Good luck!
We live in Texas and are residents of Texas. My husband signed up with Company A in Oklahoma as a Consultant but he physically works for a Company B in Pennsylvania. So Company A in Oklahoma, pays my husband then charges Company B in Pennsylvania for the work that Company A paid my husband for. We will be receiving a 1099 at the end of the year from Company A only and it says Oklahoma on it because they are the one’s that pay my husband. Company B only pays Company A. So…question is… would we have to pay state taxes to Oklahoma as he doesn’t ever physically work there or step foot there… but they pay him…. AND/OR do we also have to pay state taxes to Pennsylvania where he physically works even though they don’t pay my husband so we will be getting no paperwork from them as I’m sure it goes to Company A in Oklahoma.
Hi Mish,
It sounds like your husband is employed by “Company A” in Oklahoma and since the 1099 is from that company, he will most likely have to file a nonresident return and pay nonresident tax for Oklahoma. To be sure, I suggest directly asking Company A ( I am sure others have the same question).
Regardless, be sure he files a nonresident return for that state he is “working” in (in this case, Oklahoma). Since you live in Texas, your resident return is for Texas (however, Texas does not have an income tax and therefore you do not need to file a resident return).
Good luck!
Maybe you can help me. I am being told many differentt things… I live in Texas (no state tax) I work remotely from home – for a company based in SC… What should my with-holdings be? My company is saying that I wil still have to withhold SC state tax..?? I physically live & work in Texas – the company that I am working for is in SC..Help..
Hi Christy,
Generally, you would need to pay taxes to both and would have to file a resident return in the state where you live and a nonresident return for the state where you work. However, Texas does not have income tax and therefore you will not need to file income taxes for Texas. You will have to file a nonresident return for SC. A nonresident return only taxes you on the money you earned in that state.
Good luck!