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.
Hello. I grew up in NJ and still consider my parents’ house there to be my permanent address. However, I have an apartment in NYC that I live in on a regular basis and sleep at my parents’ house in NJ less than 30 days a year. Do I have to file taxes as a full-time resident of both NJ and NY? Thank you.
(note that I work in Connecticut, but I know I would file as a non-resident there)
Hi Adam,
According to tax laws, you are considered a resident of a state if that’s where your main home is located for the entire tax year and is the state you “intend” to live when you return from vacation, business trip, school, etc. You are a non-resident of a state if you temporarily live there (no intention to make it your home) or didn’t live there during the tax year and received income from that state.
It sounds like you should file with your NYC address, and file a resident return for New York (considering you live there most of the year). In this case, you would file a resident return for NYC and a non-resident return for Connecticut. As a non-resident of Connecticut, you will only be taxed on the income you earned from CT sources. If you have income from NJ sources, you would also file a non-resident return for NJ.
My fiance is a resident of Hawaii, and did not earn any income there in 2013. He did, however, fish in Alaska for three months, and earned a 1099-MISC. What should we file?
Hi J,
Your husband will file a resident return to Hawaii, reporting his Alaska income. He will not have to file a non-resident return to Alaska because Alaska does not have income tax. Also, don’t forget to file federal as well!
My husband works for a company that is based in Tn. He gets his paychecks from this company. How is doing contract work for them in Arkansas. He lives in Tn. Does he have to pay Arkansas state taxes?
Hi Vonda,
It depends- if he is receiving income from Arkansas sources, then he would have to file a non-resident return to Arkansas and as a non-resident he would only be taxed on his income from Arkansas sources.
If his pay is from TN sources, then there is no need to file a non-resident return to Arkansas, and since TN does not have an income tax, he will simply file a federal return (unless his resident state is not TN, then he will file a resident return for the state he lives in).
It’s good to know, when filing his taxes on RapidTax, our tax team is available via live-chat, phone and e-mail for any questions regarding what returns he needs to file. Best of luck!
Hi,
I’ve lived in Florida for all of 2013, and all income earned was in Florida. The trick is, I never changed my license from NY to FL when I moved here. Do I need to pay state taxes in NY? (I didn’t live in NY or earn money there, just have the license).
Hi Thyme,
No worries, if you did not live in NY in 2013 and did not receive income from NY sources, then you will simply file a federal return (FL does not have an income tax).
Thank you so much. Very cool of you to answer questions like this.
Thanks… We aim for cool (and helpful)!
I am self-employed in a NJ based S-Corp. I am moving to California and will be working from home in California maintaining my NJ business. Do I file a California resident return and a NJ Non-residents return, as I will be working in California but the income will be generated in NJ?
Hi Michelle,
Yes, that is correct!