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.
Hello,
I live in IL with my parents, that’s where i’m keeping my residency, I moved to California temporary for about a year or so to try out our new office and project out here and decide whether i want to stay or not. I do have a lease here but again i’m keeping my main residence in IL. How do i file taxes? will get over charged in taxes? Thank you.
Hi Sara,
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.
I suggest taking a look at another article on our blog that will help answer your questions more in depth. It is an article about filing taxes in two different states and what you will need to know.
We have an employee who is a legal resident of Arizona and pays state taxes there. She is now working at our company in AL due to her spouse being in the military. I have the A-4MS and verified with AL that no AL taxes are to be withheld from her wages. What about AZ taxes? Do we as a company that is only in AL need to withold and pay the AZ taxes and also register for AZ SIT or is this the employee’s responsibility?
Thanks!
Hi Sheila,
I suggest contacting the Alabama Department of Revenue or looking at their website. Also, consider using the Arizona Department of Revenue as another point of reference.
OK, kind of a more difficult question. I lived in SC, worked in IL…had taxes withheld in both states. I moved in August so filed a SC part-time resident return, IL part-time resident return…easy so far. My SC W-2 showed income and taxes held for the period until I advised my Company I moved, even though I worked in IL. My IL W-2 showed the ENTIRE year income. Now, SC is saying that income tax paid to another state may be taken as a credit only when the income was taxed by SC (which I believe it was.)
My tax advisor says I need to get a corrected W-2 with SC that shows $0 income and the SC taxes withheld. My Company says that they don’t do that, only the Income Earned where I lived for the time I lived there and where I worked for the entire period.
Any thoughts?
Thanks, enjoyed all the comments and advice. Mark
Hi Mark,
Good to hear that you enjoyed the article!
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. From the information you’ve given above, it sounds like you have done this. Before demanding a corrected W-2, I suggest having your employer go over the W2 with you. It could have been a mis-communication of when you moved or a number of other factors.
I currently live in Maine, and will be starting a new job in NC in August. I had planned on leaving Maine as my primary residency as my family will still have a home in Maine. Would I just pay resident taxes in Maine and non-resident taxes in NC?
Hi Elizabeth,
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.
I suggest taking a look at another blog article of ours titled, “Filing Taxes in Two Different States”, as another reference point.
I live in Louisiana, the company I work for is based out of Texas and the location I work at is in North Dakota. I work a 14 on 14 off schedule. Do I pay North Dakota taxes?
Hi Jason,
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 physically worked and earned money but didn’t live.
Take note: it doesn’t matter where your company is based out of. 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!