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 NJ and my company is also in NJ. My company sent me to work on a project for a week in NY. When I got my check I saw that they had taken out NY income tax. Were they correct to do that?
Just moved to CO (live here) at the very end of 2013, began working a new job in February 2014, but my income from this new job comes from Wyoming (which I understand does not have indiv income tax). I did NOT have to file any 2013 CO tax return because I basically moved right at the start of the year. Since I am not paying CO income taxes from each paycheck, should I be proactively paying them now to avoid penalties, or can I just wait and pay the bill when I file my taxes next year? Or, are penalties only assessed based on if you owed on last year’s return (which I did not have) and did not make adequate adjustments? Was looking into it and think I already missed the quarter 1 payment deadline… Any advice appreciated.
My family lives in PA for years, and I will take a job and buy a second house in MD, but not plan to live there for more than 180 days a year. I think I only need to file PA income tax return , even my salary is from a MD company (Domiciliary State Exemption between MD and PA). However, one of MD residence definitions is to own a abode (place to live) in MD, is it correct that buying a second home (or even rent one) in MD would automatically make me a MD residence and taxed as one as well? Thanks!!!
I live in Minnesota, but work in Alaska. I am in Alaska working about 190 days a year. Do I need to file and pay MN state income tax?
Hi AP,
Considering you are a resident of Minnesota, you will need to file a MN resident tax return and report all income received from all state sources. As a resident, you will be taxed. You will not have to worry about filing an Alaska tax return considering Alaska does not have income taxes.
I plan on buying a condo in Florida and apply for a driver;s license and voter registration and reside in florida for 6 months and one day. (snow bird) I work for a company in New Jersey do I have to pay New Jersey income tax for the 12months how does that work.
Hi Carmen,
It depends on what state is your resident state (that state you spend the most time in). If your resident state is New Jersey, you will pay taxes to NJ as a resident. If you are a Florida resident at that time, then you would only pay non-resident tax to New Jersey, meaning only your income received from NJ sources will be taxed by NJ.