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 moved to Florida half a year ago and is a permanent resident. I do stock trading for a living and its mostly online on a computer.. Sometimes i would be travel NY and stay their for a few months, meanwhile i would logon to my trading account and trade from their. Do i have to pay state taxes in NY? What are the laws behind this? So if anyone who has a buisness over the internet can simply move to a state with no income taxes and sort of evade tax?
Hi Justin,
You need to file a return where you reside and where you earn income. However, there are nine states without an income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you are resident of one of these states, you don’t need to file a resident tax return.
In your situation, you do not need to file a resident tax return for Florida. However, you do need to file a nonresident tax return for New York since you are earning an income there.
I have lived in PA all of 2014 but only just recently changed my address with work. Do I need to file a non-res for Maryland and a resident for PA? Also, they do not take out state taxes if you live in PA. Am I suppose to set aside money for taxes?
Hi Mike,
As a general rule, you have to file a resident tax return in the state where you lived, a part-year resident return in any state you moved to/from, and a nonresident return in a state where you earned money but didn’t live.
My husband works for a company that has corporate headquarters in PA. This company subcontracts to a company that has corporate headquarters in TN. We live in GA. He works part of the time in AL and TN. I have filed estimated taxes in GA but do I also need to check with AL. I know it has to do with where his income is sourced. Would that be TN or PA
Hi Susie,
You will need to file a resident tax return for Georgia since you live there. Also, you will need to file a nonresident tax return in any state that you earn income. In your husband’s case, these states would be AL and TN.
Keep in mind – it doesn’t matter where your company is located. If you didn’t live in a state, and you physically did not work there, you don’t have to file a return there just because the company paying you is based there, although you do if they accidentally withhold taxes for that state.
I currently live in and work from Washington, but most of my business is done over the internet, where I ship products to clients. I’m not affiliated with a company, but I was wondering if I should be charging my customers WA rate or of their individual state’s rates. I’ve been just charging them my local tax rate (8.74%) but I don’t know if that’s correct, or if I should be refunding a few of them the extra taxes.
Hi Terry,
You will need to figure out if you are running a business in a origin-based state or if you are running a business in a destination-based state. The majority of states with a sales tax are destination-based states, but there are a few who have an origin-based system
Hi. I currently live in NJ and will soon be starting work for a company in RI. Eventually, I will be relocating to RI, but not for a couple of months. How should I instruct my company to deduct my taxes both before and after I relocate? Thanks for your advice!
Hi John,
Before you move to RI, you will need to file a resident return for NJ and a nonresident return for RI. Once you move and if it is within the same tax year, you will file a part-year resident return for both NJ and RI. Here is another article on our blog that may explain even further.