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 lived and worked in California until I moved to Washington in August. Since August I continue to work in Washington for the California employer. Although I am not physically working in California, but my employer is and my paycheck comes from California do I file a non-resident return for California in the future? How do I file this year?
Thanks in advance!
Hi Donna,
Since your company is based in California you will file a non-resident return for California in the future. This will tax you on the income received from the state of California (where your employer is). You won’t have to file a state return for Washington (as long as you live in the state and not DC) because the state of Washington does not have an income tax.
For this year, you will file a part-year resident return for California and a non-resident return for California for the months you lived in Washington.
Best of luck!
Hello i was wondering my husband and i live in nh ( no income tax) he works in vermont and every year we end up having to pay additional state tax to vermont even though he has it taken out every pay period should he be filing a separate tax form without my NH income involved we always file married jointly but should he do the state tax separate?
Ho Theresa,
Yes, he should file a non-resident return for Vermont and would normally file a resident return for the state you live in. Since NH does not have a income tax, he will not have to file a resident return and only the non-resident return for Vermont.
I suggest filing together for federal taxes and separately for state.
Hello.. Here is my situation- I am a legal NJ resident, but I am currently living and working in FL. FL is one of the states that does not without state income tax, however, NJ does. Since I am an NJ resident, will I owe money back to NJ when income tax time rolls around? I worked in NJ up until August, and I have worked in FL from August to present. On my pay stub, I have realized it says NJ tax, but no tax has ever been taken out since I have left NJ.
So the general question is will I be penalized come income tax time and owe a lot of money back to NJ? I appreciate your response. Thanks!
Hi Stephen,
You will file a part-year resident return for NJ, which means you will be taxed in NJ for the months you lived/worked in NJ. For the months you worked and lived in Florida you shouldn’t be taxed. Generally, you would file a part-year resident return for NJ and a part-year resident return for Florida, however, since Florida doesn’t have state taxes, you will only have to file the part-year resident return for NJ.
Hi there – I think you didn’t catch my response/question above, from Nov 7th – I’m not a freelancer and do not get a 1099. I am a FT employee and get a W2 and the address on it is Michigan. So I’m a regular FT employee working and living in Michigan, for a company located in NYC. I moved to MI April of this year. How would I file my taxes this year? Thanks so much, in advance –
hi,
I used to live in Virginia for 4 years. So in the first 6 months of 2013, I still lived and worked in Virginia.
After that, I married and moved to Florida with my husband. Now i live and work in Florida.
So what should I do when I file the tax? Should I file all tax in Florida with my husband?
Hi Jenny,
Congratulations on getting married! You should file federal taxes with your husband.For state taxes, you will file a part year resident return for Virginia and part year resident return for Florida. Part year resident returns are designed for anyone who has moved during the year. We actually have an article regarding filing taxes in two different states. Here is the link if you want to read more about it; http://www.rapidtax.com/blog/filing-taxes-in-two-different-states-what-you-need-to-know/
Good luck!