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 reside in New York state but work for a company that is in Pennsylvania. My employer is only witholding PA state tax and nothing for NY. My employer is also witholding for PA unemployment, somehow that doesn’t seem right since I can not file for unemployment in the state of PA.
Hi Melanie,
Your employer is actually doing the right thing. You are correct that you will have to pay New York state taxes on all this money. You will have to file as a New York resident and as a Pennsylvania nonresident (assuming you’re physically working in Pennsylvania. It’s unclear from your post, but if you are working remotely from a location in NY, you shouldn’t owe anything in PA taxes). When you go to file your NY return, you’ll get credit for the taxes you’ve already paid (through withholding) to PA.
Hi, I had a pa license but began working in fl in April 2011. I then got a fl license in August but my w2 still listed my pa address. Do I need to file taxes in pa?
Hi Jae,
How you have to file depends on where your official state of residency was. If you switched residency during the year from Pennsylvania to Florida, you will have to file a part-year resident return in PA, but if you remained a PA resident for the whole year, you will have to file a PA resident return.
I live in TX. I earned money from an oil royalty in TX. I only worked in PA in 2011 on a pipeline. I do not pay state taxes in TX but I do in PA (which I understand). But why would I pay PA taxes on the oil royalties money from TX? I did not have taxes witheld from that oil royalty. But, I did see that some money was deducted from my federal taxes one I input that 1099 MISC from the oil royalty.
Hi Matt,
You should not be paying PA taxes on any income other than that which you earned in PA. Does it say on your 1099-MISC that PA taxes were withheld? If not, they probably weren’t. If you filed with RapidTax, you can call 877-289-7580 to follow up with a customer service agent.
I live in FL and work as a consultant (translator)
I have checks comming from many states where my clients have their business, all are 1099 misc. income.
The question is do I have to file taxes in all the states where I get checks from?
Hi Carlos,
You have to pay state taxes in all the states where you earned money. So if you were physically in Florida while you earned that money, you don’t owe state tax on it, no matter where the checks are coming from.
I live in Florida (did not live in Ohio at all during 2011) and received wages from an Ohio company, but did no work at all in Ohio. The Company withheld Ohio and Local taxes. Am I entitled to that money back and how do I get it?
Hi Jack,
You are correct that you should not owe any Ohio state taxes, but unfortunately your employer has been incorrectly withholding taxes and as far as the state of Ohio is concerned, you do owe. The first thing to do is contact your employer. At the very least have them stop withholding taxes for 2012 and see if there’s any way for them to help fix the situation. Then you will need to file a nonresident return in Ohio (since the state thinks you did earn money there) but I would give the Ohio Department of Taxation a call and ask them if there’s anything you can do.