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 am an international student student at an university in Boston, MA. However, I moved to NJ for a summer internship. Do I pay state tax for both MA as well as NJ?
Hi Sidhesh,
I suggest taking a look at the New Jersey State website (or contact them directly) about their residency rules since every state has a different set of guidelines.
Wow. What a great resource.
I have established a corporation in Texas, my drivers lisence is Illinois, and I work as a contractor which may be in various different states throughout the year. By the replies above, I gather I don’t have to pay IL taxes.
For 2014, the first half of the year I worked in Texas and second half will be entirely in California. So as an example, my company has 100k in revenue by year end and I pay 20k salary to myself in TX and another 20k in CA. So company has 40k in profits after 20k in expenses.
Do I have to pay CA taxes when my corp pays me dividend on profits it made in CA?
CA has different income rates depending on salary – I only pay on 20k but which tax rate would I use: 20k or 40k?
Hi,
These guidelines are for people who are employed in one state and live in another. Under your circumstances, you own a business so the rules may be a bit different when it comes to the states you would file a return for. I suggest taking a look at the state website for your business as well as the self-employed page of the IRS website.
I live in Nevada but consult via internet for a California company. Nevada does not have a state tax so I know I would not have to file for Nevada. But do I have to file in California for the income earned in that state even though I do not go to that state to work. All work is done remotely.
Hi Dale,
You will always be taxed in the states in which you live and physically work. You should not be taxed in a state if your company is based there but you don’t work there. If you own the company, it’s an entirely different tax situation altogether and you could very well be taxed in that state as well.
We recently moved from Georgia to North Dakota. We own a home in Georgia but are leasing it out. We lease an apartment and work in North Dakota. Do we have to pay taxes in both states?
Hi Brenda,
As a general rule, you have to file a resident tax return in the state where you live, a part-year resident return in any state you move to/from, and a nonresident return in a state where you earn money but don’t live.
I would take a look at the residency rules and regulations for both Georgia and North Dakota since each state is slightly different. You will most likely need to file a part year tax resident return for both states.
Good afternoon,
I recently accepted a new position at a major healthcare system in New Jersey. Other than a few days a month, I will be working remotely from my home in Kentucky. The healthcare system will only withhold NJ taxes. I understand that I will be required to pay taxes to KY on 100% of my income but how will that work since my employer with not withhold and submit payment for KY? Will I have to pay full tax amount to both states thus doubling my liability? To clarify, my employer will withhold NJ taxes even when I am working in KY.
Hi Rusty,
You will always be taxed in the states in which you live and work to earn an income. However, you should not be taxed in a state if your company is based there but you don’t physically work there. The exception is if you own the company; it’s an entirely different tax situation altogether and you could very well be taxed in that
state as well.