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 live in Washington state and work for the U.S. Dept of Interior in Portland, OR. I frequently work out of the state of Oregon and I also telework (in WA). I understand that the out of state work and telework is not subject to Oregon State income tax. In 2013 I was furloughed for 2 weeks, during which I did not work. Later I received back pay for the 2 week furlough. Is this furlough income typically subject to non-resident state income tax?
Thanks
Hi Randal,
This information will be on your W-2 when you receive it from your employer at the end of the tax year. If tax was withheld from Oregon, then you will then need to file a non-resident state return.
I work in NY at a government job.
My family is in NC. My home is in NC.
But I only go home on the long weekends
and holidays. I pay NY income tax.
Am I considered a nonresident of NY?
Hi David,
An individual is a New York resident if one of the following conditions is met:
1) If an individual is “domiciled” in New York, such individual is a New York resident.(The relevant state regulation states that “Domicile in general, is the place an individual intends to be his permanent home – the place to which he intends to return whenever he may be absent)
2) If an individual is not “domiciled” in New York, such individual is a New York resident if s/he both “maintains a permanent place of abode for substantially all of the taxable year” and spends in the aggregate more than 183 days of the taxable year in New York.
BTW, the company I work for in Nevada does have a branch in California.
Hello,
I own a house in California where my family lives. I rent an apartment in Nevada where I work. I visit my family almost all weekends. Some times they travel to Nevada, but most of the time I travel to California. My kid goes to elementary school in CA, and my S/O does not work.
So am I Nevada resident or California resident? I don’t have any income in California. Do I still have to file CA income tax?
I only have couple of checking accounts in California that don’t pay any interest. But I can update my address on them if needed.
Thanks,
JIM
Hi Jim,
When it comes to being a state resident for tax purposes, each state has their own set of guidelines. I suggest checking the State of California Government website page along with the State of Nevada Government website page and possible contacting their offices directly.
Hi!
I am a permanent resident in New Jersey and will be starting a new position in New York tomorrow. The human resources department of the firm was unsure what tax withholding forms I should be completing and submitting to them to ensure that I was having the proper amount of income (my choice) withheld from my salary. I contacted the tax departments of both states but neither were able to provide and concrete assistance. I have completed my Federal W-4, and was told I should also complete New York tax withholding documents (as a non-resident), and New Jersey tax withholding documents (as a resident).
Any insight that anyone can provide with respect to what tax withholding forms I should be submitting to my employer tomorrow would be greatly appreciated!!!!
Thank you in advance for your help!!!!
Hi CJ,
Unless otherwise requested, submitting a W-4 form to your employer should be enough. When filing your taxes at the end of the financial year is when you will submit your state resident returns along with your federal return.