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 live in one state (new jersey) and work in another (new york). I made no salaried income in the state that I live in. However, for some of 2011 I was unemployed and recieving unemployement benefits. I had federal income taxes taken out for 2011 but no state taxes withheld. I know i need to file a new york non-resident return but do I still need to file a new jersey resident return if i dont owe any taxes to new jersey and didnt make any income there? And if i do need to file a new jersey return should both my inocome from my unemployment and new york be listed on it? Thanks in advance.
Hi Kerry,
You have to file a resident return in New Jersey for all of your income, whether it was earned in New Jersey or not. This is true of resident returns for all the states. Luckily, unemployment compensation is not subject to New Jersey gross income tax, so you don’t have to report it. When you do file in New Jersey, be sure to claim the taxes you pay to New York, that way you won’t be double taxed.
My company is looking at moving our office to Connecticut. I currently live in New York. Are there any tax benefits to moving the office to Connecticut, where the tax rate is lower?
Hi Lee,
You’re going to have to take a close look at corporate tax rates, and maybe property taxes, in the two states and how your business fits in to them to determine how beneficial it will be. As for personal income taxes, as long as you continue to live in New York, you will have to pay state tax on all your income, including that earned in Connecticut. You will also have to pay CT state tax on the income you earn in CT. You can claim your CT taxes on your NY return, so you won’t be double taxed, but I doubt any great tax benefit would result. If you decided to move to CT, however, and become a CT resident, then you would definitely benefit from the lower tax rate.
I work in Ohio but also earned income from a business that I own in Florida. Since Florida does not have income tax, am I responsible to pay Ohio income tax on the amount I made from my business in Florida? I dont’ see anywhere on the Ohio tax forms to deduct that amount from my Federal AGI.
Hi Jack,
When you file your state taxes as a resident of the state you live in, you have to pay tax on all of your income, whether it was earned in that state or not. It’s only when filing as a nonresident in a state you don’t live in that you pay tax only on the income from that state. So if you live in Ohio, you will have to pay Ohio state tax on all of your income, from all states.
Hi, I’m currently living in MN and working online at a company based here in MN. I’m moving to WA and will be keeping my current job (since it’s all based online) but since WA doesn’t have a state income tax will I still need to pay MN state income taxes?
Hi Maria,
You will have to pay MN state taxes for the portion of the year that you lived and worked there, but once you move it doesn’t sound like you’ll have to pay MN taxes any longer. You only have to pay taxes in the states where you live or work. Where your employer is located is irrelevant.
Hi,
I live in NJ and just started a job in NYC. On my first paycheck both NY and NJ state income taxes are being taken out. Is that correct or should only NY be taken out and NJ filed at year end?
Thanks
Hi Mary,
Yes, that is correct. Ultimately you’re going to have to pay state taxes for both New York and New Jersey, so it just makes your life easier to have both withheld now. If you have any more specific questions I would ask your HR department.