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 lived and work in AZ all of 2013. I am legally married my spouse lives and works in NV how do I file AZ State income taxes?
Hi Rosemary,
You can file a joint resident return for AZ, reporting both of your income (even the NV income). Your spouse would generally have to file a non-resident return, however, NV does not have an income tax, meaning only a resident return for AZ is needed.
I’m a resident of California but took a job working for the Senate in DC. While there I also waited tables on the weekends. The Senate did California withholding while the restaurant did DC withholding. Then, when the jobs ended, I filed for unemployment in DC, assuming that was where I needed to file since I had been living there for nearly a year, and moved back to California where I looked for work while I received my unemployment.
How do I handle this?
Thank you!
Hi Mark,
State residency is determined on what state you lived in for the most time during the tax year. If you consider yourself a resident of California for 2013, you’ll have to file a resident return for California and a non-resident return for DC.
You’ll only be taxed by DC for the income received from DC sources.
Tax Advisor,
I live in Florida and work for a company that is based in New York. I travel the USA as Director of Sales and spend very little time working in New York. What can I do to get a refund of the NY state income tax that my employer deducts from my compensation?
Thanks for your help.
Hi Jake,
You will file a non-resident return for New York state, reporting all your income earned form NY sources.
Hi!
I am a full time student and live in IL. I worked in IL and also worked in IN during school. Do I file taxes both states? If so, do I include the out of state earnings with the resident state earnings or will the earnings only apply to the amount earned in each state?
Thanks,
Andrea
Hi Andrea,
Yes, you will do just that. File a resident return for IL (reporting all income earned) and file a nonresident return for IN (reporting income earned from IN sources).
Thank you.
What if I moved to Georgia on March 15th from Texas. Technically I became a Georgia resident on March 15th. On March 16th, I received a check for the work I performed in Texas (from March 1 – March 14th). Would Georgia State tax me on the amount for the services performed while I was a Texas resident from March 1 – 14th?
It depends on your state’s tax laws, however, probably not.