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 live AND work in CT. The company i work for performs a percentage of its work in NY. As an employee should i be taxed for the work i perform in NY. Or is my employer only responsible for this?
Thank you in advance………..
Hi Erik,
It sounds like you should only be taxed by CT. Your employer is responsible for this, so you can also double check with them.
this whole thing is very confusing to me, I live in NY state and am considering a position with the VA medical center having a duty station in PA. who taxes me? how does this work?
Hi Robin,
To sum it up, for the state you live in, you file a resident return and report all income earned, regardless of what state it is from. For states you do not live in but work in and receive income from, you file a non-resident return. As a non-resident you are only taxed on income earned from that state’s sources.
Your employer should take out both NY taxes and PA taxes from your pay.
Hey
I live in texasm my company is based out louisiana, but i work offshore in gulf, Do i still get taxed by louisiana…
Hi Russ,
Most likely, but you will have to check with HR of your company.
Hello
My company is relocating my job from GA to NJ this year. It more than likely will be in June. I plan on keeping my family in our home in GA so my kids can go to the schools we love. I will have a rental property in NJ but will try to use my home in GA as my primary residence. Will I be required to file taxes in both states? I plan on trying to find a job back in GA
Thanks
Hi Garrett,
Yes, you will file a resident return for GA, and a non-resident return for NJ. As a NJ non-resident, you will only report the income earned from NJ sources.
My daughter attended school in LA. and has since graduated and found a job there. We are from IL. and she still uses our address in IL. She did not work in IL in 2013, but did work in Utah for a month and has her current job in LA. Does she file resident state tax in IL and then non-resident for CA and UT? On the bottom of her W2’s, each one has the name of each state she worked in.
Thanks for any help.
Hi Joyce,
Your daughter will have to report all income she received from that states she is not a resident of on non-resident return. It sounds like she worked in LA and UT? In that case, she will file a non-resident return for LA and UT while filing a resident return for IL.
Our tax filing application is actually designed to make situations like your daughters easy to file multiple state returns. In the state section, she will simply check a box stating she earned income from additional states, and then will be guided to enter that income information.