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 currently live in AZ and work for an AZ-based company. I will be moving to OH in August and will be working from home in OH remotely for my current employer in AZ. My company has provided me with a link to the Ohio IT 4 form to fill out.
When I file taxes next year, I’m assuming I will have to file a part-year AZ income tax form and a part-year OH income tax form. Will that always be the case each year, or will the part-year AZ income tax form be a one time thing and from then on I’d only file an OH state tax form? Also, is there a separate tax withholding form that I should fill out so my employer in AZ can deduct municipal taxes from OH?
I appreciate your help.
Hi Linda,
You are only taxed in the state where you are a resident and in the state where you physically work. 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.
In your situation, you are correct. You will need to file a part year resident return for AZ for this tax year along with another part year resident return for OH because you are moving. Come next tax year, you will file a resident return for OH since you will be residing there and physically working there.
Here is another blog article for you to refer to with further explanation.
asking for a friend of mine. Live in NC and will be working in NC but company is out of Georgia. Do I understand right? He will not be taxed in Georgia? Just NC? thanks
Hi Gay,
You are correct. You are only taxed in the state where you reside and the state where you physically work.
I am interning in Chicago, IL this summer, but I live permanently in Texas and go to the University of Texas. On my check Illinois is listed as my primary tax state so I am paying an Illinois state income tax. I am aware that Texas omits this deduction from my check. Should I talk to payroll and ask them to make TX my primary tax state since I live there rather than IL?
Thanks!
Hi Hunter,
Keep in mind that you are always taxed in the state where you live and the state where you physically work. Although Texas is an exception to this rule, Illinois (unfortunately) is not which is why you have taxes withheld while working in Illinois.
Hey, I live in MS & a few months ago took a job for a company named Wesco International. I’m working for their distribution counterpart. They have branches all over the U.S. & I joined them to help the fossil fuels division vendor management in their MS & LA territiories. Well, here’s the thing: I live in MS & always have. I took the job & have not moved. The branch I’m categorized as being under is the North Little Rock, Arkansas branch but that’s only because they have to categorize me as a remote worked since the Jackson, MS office is still in the works. This is purely for purposes of having a boss to report to by email & phone & a sales person that I can coordinate with by email & phone when needed. But of the 8 Entergy facilities I actually go around to, 5 are in MS & NONE are in Arkansas. 3 of them are in LA, but I only go to these one day out of every 14. Okay, so despite all of this.. I’m having income tax withheld from my checks as if I’m an Arkansas resident. From what I could see in article 4 of the relevant IRS publication, I am by no means elligible to be classified as a resident of Arkansas & do not actually do work there even if a branch of the company I work for is located there. Based on all of this info, I believe I have been erroneously taxed by my payroll department & should’ve been having tax withheld from Mississippi this whole time & NOT from Arkansas. My concern is that I think ARkansas has a higher income tax rate & my employer (even if this is correct) will probably simply want to start having the tax allocated towards MS income tax from now on. But, that still will not make up for them having taken more from my checks than they should have & it won’t necessarily make me squared away with MS when tax time comes around. I have provided them with all of the info they need since day 1 & I feel like if anyone has to jump through hoops or lose money over an error it should be them. Thoughts?
Hi Rick,
You are correct. 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. If this happens, ask them to stop withholding taxes in that state so you have one less return to file.
Hello, I recently moved to Louisiana (state tax) from Florida (no state tax). I work remotely for the company I was at in Florida. What do I need to do when filing taxes next year?
Hi Samantha,
You are required to file a return in the state where you live and in the state where you physically work and earn an income. In your situation, you will only need to file a resident return in Louisiana.