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 have a permanent residence in az. I worked three months in florida. Do I pay taxes in az for my work in florida. I had a residence there.
Hello.
I have a new job. The company is a foreign company and this company has a US subsidiary at Delawere.have Under this Dalewere EIN, they have another 4 legal regional offices in 4 different states. I will be belong to their NJ office. However, I will have to work at MI. I am MI resident.
In this case, Do I have to report the state withholding tax and unemployment tax to NJ and MI both?
Thank you.
Hi James,
I suggest contacting the company to ask them. However, if MI taxes are withheld and NJ taxes are withheld, you would file a resident return for MI and also file a non-resident return for NJ. Regarding NJ, you’ll only be taxed on the income you received from the NJ source(s).
Ok I love in Louisiana work overseas and spend less than 6 months a year home. Should I have to pay a full year of state taxes to Louisiana?
Hi Jayde,
You may have to if you are listing Louisiana as your resident state on your tax return.
I am a resident of California and did a 4-month internship in Florida which has no state income tax. I am wondering if all I need to do is to file a California income tax return? Is there a tax credit on the FL income that I can claim due to that state not having income tax? Thanks.
Hi Otto,
You are correct, you’ll just have to file a resident return for California. Generally, you have to report all income to your resident state and pay tax on it.
Tax Advisor,
I live in Texas and am about to start employment in Louisiana. There is no state income tax in Texas, but as a home owner, I pay very high property tax instead. In Louisiana, there is a state income tax. If I have to pay a 6% Louisiana non-resident income tax AND my very high Texas property tax, I’m paying almost double the tax amount.
Can I deduct the non-resident Louisiana state income taxes from my federal taxes?
Hi Steve,
As much as it’s not fun to pay taxes, you do have to file a non-resident return and pay taxes on all income earned from the non-resident state sources and can not deduct these taxes, even if you pay high property taxes in your home state.