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.
How do you handle situations where you commute to other states for weeks at a time (ie consulting jobs)? For example 10 weeks commuting from Indiana to NYC, 10 weeks from Indiana to Boston but home on the weekends
Hi Tom,
In all likelihood you will need to file as a nonresident in the other states you travel to. I suggest keeping track of the states you travel to, the amount of time you are in those states and the income you incur while working in those states. Most states have a gross income threshold below which you don’t need to file, but they tend to be pretty low bars.
I live in Montana…and just started a new job working for a company in Utah. Since I will be in Utah several days a week for the first few months (training), it looks like I will be taxed in both Montana and Utah. Does that seem right (to be taxed on a paycheck for both)? Any considerations to keep in mind?
Thank you…
Hi BTS,
Unfortunately, you will have taxes withheld for both states while you are a resident of Montana and earning an income in Utah. However, upon filing your taxes at the end of the financial year, you will file a resident tax return for Montana and a nonresident tax return for Utah.
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.
Hi! I am living in CA and working 100% remotely for a salaried position in NY state (not NYC). All of my payroll withholdings are for NY state, and my employer has no business relationship with California at all. I was told by the head of HR that since I am a remote employee, NY state gets my income tax, and if California has a higher rate, I will owe CA the difference, and that I will file returns as a CA resident and NY non-resident. Is this correct?
Thank you!
Chris
Hi Chris,
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. Therefore, you will have taxes withheld for these states which will reflect in your paychecks.
Thanks for the quick reply!
By the end of 2014 I will have lived in California the whole calendar year, and will have been a “remote NY employee”–as HR puts–it for the entire year.
Understood about filing resident CA/nonresident NY, I guess what I’m trying to get is an idea of what my liability to both states might be? Current withholding is only for NY through HR, and that’s fine, but will I also owe CA anything, and should I be making estimated payments to CA now? Income is in $80K bracket.
Hi,
I live and work in NY. My business is in NJ. My husband does not involve in this business.
Case 1 – I am currently a shareholder of commercial rental S-Corp in NJ, but not as an employee there. No salary income will be receiving from this business, only divined from the net profit.
1. My husband and I file join NY income tax. Do I need to file the NY non-resident income tax return for myself only?
2. If not, then where do I report this profit income?
Case 2 – We, the other shareholders, are thinking of converting the business from an S-Corp to an LLC in NJ. After the conversion, all active members, members that are working in the LLC, need to file an NJ Self-employment tax.
1. If I am an active member, do I need to file a NJ Self-employment tax and NY non-resident income tax?
2. What if I am not an active member who received no salary but only dividend from the net profit, if I ask the same questions that I asked in Case 1, would I get the same answer as in Case 1?
Thank you for your advises!
Ling
Hi Ling,
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.
However, under your circumstances as a shareholder of an S-Corp, I suggest taking a look at the IRS website for further information. These site pages have specific information that I think we’ll be able to answer your above questions.
Hi, We live in Nevada, my wife is taking a job in Ca. last year we made over 200k, will California require us to pay taxes on income NOT made in Ca? or just monies made in cali on non-resident form?
TIA Joe
Hi Joe,
The non resident return will only tax on the income made in that state (California in your case).