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 an employee that is a resident of MN and he is thinking about going to work at our location in ME. He will be staying in an hotel in ME but, keeping is residen/live in state as MN. Will I have to wihhold in both states or just ME?
Hi Betty,
Yes, you will have to withhold taxes for each states, as he will be considered a non-resident of ME and a resident of MN.
I am an intern working in the city of Evendale, Ohio. Ohio has a state tax and Evendale has a local tax. I will be moving back to Florida in August to continue my schooling. As a Non-resident of Ohio, am I fully liable for the State Income tax in Ohio? And when I get back to Florida in August and final my Tax return in January, should any of the State or Local taxes come back to me in the form of a refund?
I also worked in South Carolina for the first 4 months of the year and paid state income taxes in South Carolina. Same question toward SC. Will I receive the state income tax back in the form of a refund since my residency is not in that state?
Thank You for your help.
Hi Dustin,
As a general rule, you file a resident tax return in the state where you live and a non-resident return in the state/states where you earned an income. There is an exception for nine states, Florida being one of them, where you do not need to file a resident return. In your specific situation, you will file a non-resident return for Ohio and a non-resident return for South Carolina since you were earning income while working in both states but was a permanent resident of Florida. Here is another article from our blog that may help to further explain this answer.
I am a Rhode Island resident with a second home in Florida and my company allows me to work remotely from home. I spend about six months a year working from my Florida home. Am I subject to a full years worth of Rhode Island state income tax ?
Hi Steve,
Your residency depends on the state you spend the most time in. It sounds like you could make Florida your resident state. IF so, you would just pay non-resident taxes only on the income earned from Rhode Island sources.
I have worked for a company that has locations in many states. I have been living in Ohio and working in Ohio. They are offering me a promotion, but my salary will now be out of Pennsylvania. My job will require travel to visit locations (1-2 days each) in NY, OH, PA, MD and WV. Am I going to need to file in all these states. What will the tax implications be?
Hi Robert,
No, you will most likely just need to file a resident return for Ohio and a non-resident return for Pennsylvania.
Hello,
I currently live and work in AZ making 32k annually. I have been offered a job in CA where i will make 36k my first year and 39k my second. However, I will be commuting back and forth and will NOT be a resident of CA. My question is, do I have to pay state income tax in both states? If so, with a filing status of ‘single’ what percentage would each state take out of my total income? I’m just trying to figure out if the 12 hour days back and forth from AZ to CA would even be worth it at the end of each year. Please help! Thank You! 🙂
Hi Sheila,
You’ll have to file a resident return to AZ and a non-resident return to CA. As non-resident of CA, you’ll only be taxed on your income earned from CA sources. You’ll have to pay taxes to both AZ and CA, although there are certain tax credits available for those paying taxes to two states.
Arizona’s income tax rate for 2014 is 3.36% for those filing as single with income between $25,000 and $50,000. CA’s income tax is 6% for income between $27,898 and $38,726.
With CA’s higher income taxes along with the drive (and cost of travel), it might not be worth it, although you’ll be deciding that :). Congrats on the job offer though!