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 have a home in New Jersey where my husband lives and I travel home on weekends. I have a full time temporary job in Maryland I started in May of this year (was on unemployment since Jan this year) they take out NJ tax (I see it on my paystub). I just recently got a consulting job in Maryland where they are going to pay me in full and issue me a 1099. Someone told me it will end up costing me 40% by getting paid this way but it was not my choice. I would like to try and start paying an estimated quarterly tax. Do I set it up for Maryland or NJ? Can I do anything to help myself pay a lower tax from this consulting job?
Hi Diana,
Your place of employment is withholding taxes for NJ because you are a state resident there. 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.
As far as setting up estimated quarterly payments, I suggest looking at the IRS website page.
Please help. I have contacted 4 CPAs and no one seems to have the answer. My situation is this- In Dec 2013 I left my home in NC. I work for a company (W2 employee) that is located in CT. Previously I was working remotely and thus claimed NC as my residence and NC state taxes were paid. I typically visit the CT office 3 times per year for a couple of days at a time.
Since Dec 2013 I have been traveling for work (to date about 3 months worth of international travel, 1-2 weeks in any given country; the remainder all over the US). I dont have a place to live as I just live in hotels. When I am working I am only working 1-2 days in any location. I tend to stay for about a week though so I dont get too ill from changing time zones etc so frequently. If I have a week or 2 between being in a new location I will rent an apartment or stay with friends and family somewhere.
I have not updated my W4 and thus NC state taxes are still being withheld from my paycheck. I want to change this but I dont have an address to give to update my W4. I do still have my home in NC which I rent out (since March 1st).
Generally I don’t know what to do when it is time to file my taxes next April. Also:
1. Do I need to claim a state of residency? I typically use Turbo Tax to do my taxes and it asks for a state…
2. If I need to claim a state, I am thinking why not claim one that has no income tax? I might have a few weeks in October where I could go to one of these states (maybe WA) to establish residency or at least spend the majority of my time for the year… Should I do that?
Thank you! Any help is appreciated, even directing me to someone who knows what is the correct path!
Hi Sarah,
I suggest contacting the State of NC and the State of CT since each state has separate residency guidelines.
We are Kansas residents and have a recent college graduate who still lives with us. Starting next month, this graduate will be working full-time for a period of one year as a member of AmeriCorps National Service in Memphis, Tennessee. Only a small stipend is given to these students for living expenses. Does a non-resident tax form need to be filed in Tennessee since the student will return home (to attend graduate school) after the AmeriCorps term is completed? Does their temporary volunteer status exempt them from being required to obtain a Tennessee drivers license and auto tags? How would the 2014 taxes be calculated in this situation? Thank you.
Hi Sylvia,
I suggest referring to the Tennessee government website for a bit more information on your specific situation. I also suggest contacting the Americorps finance department as well.
My husband lives and works at Kentucky and he has a driver’s license of Kentucky. The kids and I live at West Virginia because I’m in a school at WV without any income. I have a WV driver’s license. We each rent an apartment. For our situation, what is the best way to file tax return? Can we file jointly and only pay state income tax of Kentucky? Or we should file separately? If file separately, do I need to file the tax return since I have no income at all? Thank you !
Hi Jenny,
Your husband will need to file for Kentucky but I suggest you to take a look at the West Virginia website to determine if you qualify as a state resident or not (every state has different residency rules).
I also suggest taking a look at the “Do I need to File a Tax Return” tool on the IRS website. It only takes several minutes to complete and will be most accurate for answering your question.
I live in utah and have an online retail business. I am moving to Australia in January for a year or two and was wondering what I do about taxes for Utah and Australia?
Hi Courtney,
I suggest taking a look at the Small Business and Self-Employed page of the IRS website. This should give you a bit of insight into filing taxes for your online business.