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 owns a home in Georgia since last February(but is a long time ga resident) and I alway work in Tennessee. Lately I’m tired of overpaying taxes which is state of Georgia taxes. Is there anything I can do to either reduce or untax it? I alway pay a lot of it and only get back $300 in taxes return. Any advice help. Thanks!
Hi Cory,
As a general rule, you will always be taxed in the states in which you live and work. The amount that is being withheld in taxes may have something to do with how many allowances you are claiming on your W4.
The general rule is that the more allowances you claim, the less withholding you’ll have taken out of your paycheck. If you claim zero, you’ll have the maximum amount taken out. If you claim a large number, you’ll have less taken out. The absolute ideal scenario is to have your tax liability (or refund) at the end of the year be as close to zero as possible.
I also suggest taking a look at the IRS Withholding Calculator. It only takes a few minutes to complete and will give you the most accurate amount of allowances to claim in order to reach that break-even point at the end of the tax year.
Ok thanks for reply. Just 1 more question. I don’t wanna make it sounds like I question anybody or anything but What obligates me to pay the Georgia state tax and the Federal Income tax? Will you please show me the law from USC? Thanks
Hi. I just graduated college and I went to school out of state. I maintained my Louisiana residency because I still have that driver’s license and that is where my car is registered. My new job will be in Texas, but I am not interested in changing my residency yet because apartments are too temporary for me. Would I only file a Lousiaiana return? My Louisiana address is also the one that I put on my W-4 form.
Hi RaLonda,
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.
You will always be taxed in the state where you reside and the state where you physically work and earn and income. However, there is an exception for filing a residency return in nine states (Texas being one of them). You do not need to file a Texas resident return because it is one of the nine states that does not have an income tax. If you choose to keep your Louisiana residency then you will be taxed there still.
Hi,
I live in Texas and was offered employment with a company that does merchandising for vendors in many stores. I live on the border of Oklahoma and some of the jobs will be in Oklahoma, however, the company is based in Texas. Would I be required to file as a non resident and pay taxes on any income earned working in Oklahoma, or is it n/a since the employer is based in Texas?
Many Thanks, Michelle
Hi Michelle,
You will always be taxed in the states in which you live and work. Generally, You will not be taxed in a state if your company is based there but you do not work there. You will need to file a non-resident return in Oklahoma if you are physically working and earning an income there. However, check with the Oklahoma Tax Commission office as well since each state does have their own guidelines.
I have my own s-corp in Missouri and single share holder (President of company). I plan to settle in Texas. My company providing consulting service to client in Missouri. Basically i am working for my company (single employee). But most of work i do from home and visit client site may be 1 or 2 month in a year.
Questions:
1. After i settle in Texas, do i need to withhold any taxes for Missouri?
2. Since i am move to Texas in July, for current year majority of time i resided in Missouri, what will be primary resident state at end of year?
3. Do i need to register my company in Texas for me to work from home?
4. Since i am president of company, is i am restricted by any means/law that i need to operate from Missouri only?
Thank you.
Hi Andy,
I suggest taking a look at the IRS’ webpage for small business owners and self-employed individuals.
I live in Tn and my job, in which I travel all over the world for the govt., had me working in ILLINOIS for 20 days. Do I have to pay state taxes. reason being I have worked there before plenty of times with the same company and never had to do a IL-W-4?
Hi James,
Typically, you would need to file a nonresident return for Illinois. However under your circumstances of only working there for twenty days, I suggest contacting the Illinois Tax Agency to learn more about their specific rules.