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 work in Missouri. I travel to other states on an as needed basis. I can spend anywhere from one to 30 days in any state. It is possible to be in 20-30 states per year. Do I have to file for each state that I travel to? Should I get 1099’s for each state?
Hi Bill,
Unfortunately you do have to file in each of those states. You should check the website of each state’s tax authority and find out what the minimum income threshold is for filing taxes in that state. I imagine that in some of those states, you may not make enough money there to have to file. But in all the states in which you make more than the threshold, you will have to file a nonresident return. It does depend, however, on how you are getting paid. If you are an employee of one company and having all of your state taxes taken out for your home state, then you may not have to file these individual state taxes. Check with your HR department to make sure.
Hello,
I live and work in California. However, in october 2010, I went to work in Penn State (Pennsylvania) for six months on a collaboration between my institute in California and Penn State University. While I was in Pennsylvania, I was getting paid from California. I have moved back to California in April 2011. I never received any W-2 from Penn State and the W-2 that I received from California has the entire state tax withheld in the state of California. How should I file my taxes? Can I just file for California? If I need to file Pennsylvania taxes, I don’t have any W-2 from Pennsylvania. Please advice.
Many thanks.
Hi Sup,
If for the whole time you worked in Pennsylvania, the entire state tax was withheld in California, then you don’t need to file a Pennsylvania state tax return. Just to be clear, you should speak with your HR department.
If a person lives in Delaware but works remotely for an employer in California, will he or she have to pay taxes in both states, since both have state income taxes ?? Also,how do wage garnishments work since the laws in the two states vary regarding the maximum amount that can be taken out of the wages ? Thanks.
Hi Question,
You only have to pay state taxes for the state in which you are a resident and any other states in which you earn income. So if you live in Delaware, and are physically in Delaware when you earn your money – regardless of where your employer is – you only have to pay Delaware state tax.
Does an employer, who’s only business location is in Texas, has an employe whose lives in TX and works in TX for all but 6 weeks out of the year when they work in Ohio, have to without Ohio taxes and if so is it only State tax? What about SUI?
Hi Pam,
According to the Ohio Department of Taxation: “With rare exception, employers that do business in Ohio are responsible for withholding Ohio individual income tax from their employees’ pay.” Check out these guidelines for more information. You will also be responsible for Ohio unemployment tax. This page from the Ohio Department of Job and Family Services should give you more information.
Hi Thanks in Advance. I have S-corp. In 2010 tax year, I had submitted expanse report by mistake twice, So my expanse for the year was over by about $2000. I discovered that mistake recently when preparing for 2011 taxes. The question is, can I return the eaxpanse amount back to s-corp this year, or I have to correct 2010 accounts and refile my 2010 1120s and then 1040?