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.
Hey tax advisor… I live in Michigan and justed started a job with an insurance company that travels a lot. My training was in Texas so I worked there. My first check had a Texas witholding tax of $165 and a Michigan withholding tax of $55… ($1300 gross pay check)
Texas does not have a state income tax but Michigan does. So I understand the $55 tax to Michigan or 4.35% rate on my income. Can you explain the Texas withholding tax of $165 that was taking off my first check and will I get that money back. I don’t understand why a state with no income tax can tax me. I feel like I am getting doubled taxed. Thanks
Hi Alex,
You are right, Texas does not have state income taxes. However, the reason why there were taxes taken out from your Texas pay check are because of federal income taxes, Social Security Tax an Medicare Tax. How much is taken out has a lot to do with the number of personal allowances you claimed on your W-4 form.
Hi, I would like to know if you can help me with this.
I have just received an assessment from the state of GA for some back taxes for 2009.
I have been a resident of FL now for 4 years and I am receiving a private pension from my former employer
which is homebased in GA. I wish to add I started receiving my pension as a resident in FLA and never had any witholding taken
from it by the state of GA. Here is my question.
If I choose not to pay the assessment, can the state of GA garnish my pension on the basis that my former employer is headquartered
there, or am I way off base with my concern. Thanks in advance,
Tony.
Hi Tony,
I would suggest paying the assessment, as state’s have the right to garnish wages for money due.
Good luck!
Thanks so much for your response. I don’t receive a 1099, though. I’m not a freelancer. I receive a W2, I am a FT employee, and the address on it is Michigan. Does that change things? Would I still need to file a non-resident return in NY?
Hi – I forgot to mention regarding above – I moved to Michigan from NY part way through the year, In April 2013. And I lived in NYC, NY, if that makes any difference. Just wondering how I file this year?
I hope you can help me – very confused. I know you have answered this over and over again, but something is making me wonder about my situation. I live in Michigan, and work in Michigan, out of my house, as a remote employee for a NY state company. I do not work at the NY state office. Based on answers above, it seems I should only file Michigan state tax and pay taxes only to Michigan. However, doing research, I was reading about the “convenience of the employer” rule and how aggressive NY is about this rule, and that NY taxes nonresidents as if they came to the office every day. FWIW, the company does have a NY office, that I technically could go in and work at if I wanted to commute from MI to NY every day. I was originally hired when I lived in NY, but have since moved to Michigan, and am a Michigan resident, and have become a remote employee (along with about 20 other remote employees the company employs.)
Hi Kerstin,
For the state you are living in, Michigan, 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. I suggest asking the company you work for (I am sure they have had other questions like this). It sounds like you will need to file resident return for Michigan and a nonresident return for New York.
Also, for the year you move, you will file a part-year resident return. That means you will file a part year resident return for both states you lived in during the year.