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 am trying to determine CA and AZ residency for income tax purposes:
Jan 2013 – Aug 2013 worked as full-time employee at employer A and lived in mobile home in CA
Sep 2013 – Jul 2014 worked as full-time employee at employer B and lived in lodge with kitchenette in AZf
I intended to move to AZ but didn’t find a place before it was time to start working, So I packed up my belongings and left them in my mobile home. I kept paying rent and had my mail picked up periodically and sent to me. I did not register my car in AZ or do anything else to establish residency other than work and stay there for 9 months (across 2 tax years).
I worked and stayed in AZ for nine months before taking another job back in the prior town in CA. I then just drove back with my luggage and started working in CA again.
Am I non-resident AZ and full year CA OR part-year CA and AZ? Is it the same for 2013 and 2014?
Hi Tom,
I suggest taking a look at the residency websites for both CA and AZ since each state has their own set of residency guidelines.
Hi Tax Advisor,
We live in Florida, husband works offshore in Federal Waters for an employer that is based in Mississippi. Can we be exempt from Mississippi State Tax? If so, is there a form we can complete to give to the employer to be exempt from their state tax?
Thanks in advance for your help.
Hi Lisa,
As long as your husband is physically working in Florida, it does not matter where the company is based. If he didn’t live in a state, and he physically did not work there, he doesn’t have to file a return there just because the company paying him is based there.
In your case, however, you will not need to file a return for Florida since it is one of the nine states without an income tax.
Glad I found this.
I work for a hospital in Florida where I lived until August 1st. I now live in Pa. So if I understand this correctly, I will have to file as a Pa resident for the income I receive from Fl since I started living and working from Pa. I will not have to file with Fl since there is no income tax. Is that correct? Shouldn’t I have Pa income tax deductions from my paychecks? Otherwise I’ll be getting screwed when it comes time to file.
Thank you
Hi Benmarco,
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 not need to file a return for Florida since there is no income tax. You will need to file a part-year resident return for PA since you moved there mid tax year. In the future, you will file a resident PA return.
You are correct about PA withholding from your paychecks. I would speak with your pay roll department.
I have employees that live in AZ, work in TX and home base is in LA. These are temporary employees (if that makes any difference). Since TX has no withholding tax do I need to register for unemployment or can I use the state the home base is out of?
Hi Stephanie,
As an employer, the guidelines are a bit different. I suggest taking a look at the IRS’ Employer Tax Guide.
My husband and I live in Maryland. He is taking a job in Kentucky. We are selling our home in Maryland and moving to TN before the end of the year (probably 2 months in TN). I believe I will file in Maryland as a resident for part of the year, a non-resident in Kentucky for part of the year, but what do I file in TN?
Hi Ruth,
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.
In your case, you and your husband will file a part-year resident return for Maryland, a part-year resident return for Tennessee, and a non-resident return for Kentucky.