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.
Hi,
I live in Connecticut and work in NYC. Do I need withhold state tax for both states? Currently only NY state tax is withheld from my paycheck. What should I do if I need to withhold CT state tax from my paycheck? Thanks.
Hi Andy,
Taxes are withheld from the state you are a resident of and the state where you physically earn an income. 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 would let your payroll department know.
Hello I live in Florida and I’m working with a temp agency in Ohio, the job I’m working on is in Louisiana I got my first check and there taking Louisiana state taxes out is this right?
Hi Dustin,
This is correct. 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 be taxed by the state where you are a resident and by the state where you physically earn an income.
I have a client whose employee’s home address was WA, but worked and lived in OR. Since the W-9 was filled as WA residents, the payroll just considered him as WA in payroll not withholding taxes. But after six months, the employee was not really living in WA only gave the address. What should the employer do with this information? Thanks,
Hi Tess,
The payroll department should be updated as soon as possible when an employee changes their address and especially residency. I suggest that your client speak with the payroll department for a resolution.
I live in WY and work in Colorado for a defense contractor. I realize I will have to file a CO tax return, however, will I be taxed at a different rate as a WY resident? Will I get more back in a refund as a non-resident? Thanks!
Hi Andrew,
You will have tax withheld for both Wyoming and Colorado.
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 am a federal employee. I live in Kansas, but my duty station is in Kansas City, Missouri (much like Joe from 5/21/12 above). However, I also telework 1-2 days per week at my home in Kansas. My taxes are currently withheld only in Missouri, and I file a resident return in KS. I did not break out my telework days on my taxes last year… do I need to file an amended return, and do I need to separate out those days for the future? There is also a 1% earnings tax for Kansas City, MO… would I not pay that for days on which I teleworked in Kansas?
Hi KCatty,
In all likelihood you will need to file as a nonresident in the other states you travel to as well. Most states have a gross income threshold below which you don’t need to file, but they tend to be pretty low bars. I would check into the gross income thresholds for the state before amending your return.