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 am a freelance designer who lives and works out of my home in Nevada with a very complicated tax situation. The only thing not complicated is that NV does not have state taxes.
I previously lived in CA, but left the state in Dec 2012. However, my last paycheck and my vacation time was cut to me in Jan 2013. So, I received a 2013 W2, even though technically I was not living or working in the state at that time.
Since moving to Nevada, I have become a freelance graphic designer, with most of my clients, including my previous employer, being located in CA. These clients in CA send me 1099’s. I only worked here in NV for these jobs, and did not travel to CA for these clients. Do I have to file CA state taxes on those wages?
Also, to complicate the situation further, I was married in 2013 and my spouse is active duty military. His “home of record” is Missouri, and since we filed Federal Taxes jointly, he had to file my information to the state of MO as well. Because of his military status, he will receive all of those state taxes back as he does not currently reside or work in MO. I am trying to make sure that we don’t have to jointly owe taxes to the state of CA, as my spouse has never worked or earned income from that state.
Thank you so much for you help.
I live in Fort Worth, Texas and work in Fort Worth, Texas but my employer somehow had my home office in the computer as Iowa. Now they have taken Iowa State Tax out of my check for the last year. Texas is a state that has no State Tax.
What do I do. I did find a form lA 126 from Iowa (Nonresident and part-year resident credit). Do you know exactly what I need to do to get that money returned to me.
I live in Michigan but work in Indiana. My company says the don’t take out Michigan state taxes because they don’t have anything to do with my state. I have never heard of this before, so how do I calculate my own Michigan State tax
Hi Scott,
Considering you live in Michigan, they should be taking out Michigan taxes as well.
Hello!
I was a resident of south carolina in 2013 and was working as a research assistant at university of south carolina. Then I got a new job in manhattan december 2013. I worked in manhattan,NY for 1 month and them came back to south carolina and moved to a newjob in North Carolina in 2014. But I was not a resident in New York. Please suggest me about TAX Filing. Do I pay taxes for both the states?!
Regards
Sharif
Hi Sharif,
You will need to file a resident return for SC, reporting all your income, from all state sources. You will also need to file a non-resident return for NY, reporting only your NY income.
I am about to start a new job, the company is based in Hawaii and I live an work in CA. They want me to use the business address as my residence and my home address as my mailing. Will this create a tax problem at the end of the year. Will I simply file a non residence in Hawaii and a residence in CA? My problem is using a Hawaii address as my residence?
Hi Amber,
I would suggest only using your address as your resident address (considering that is where your residence is).
Regarding filing state returns, you are right. You will file a non-resident return to Hawaii and a resident return to CA.