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 Tax Advisor,
I work from home in NYC for a NJ based office on a 1099 MISC. I’m currently looking at property/housing in NH, and would actually be working from my home in NH never really earning any money from NYC/NYS or NJ. Would I still have to file a nonresident tax for NJ since that is where my pay is coming from despite not actually working out of NJ or NYC?
Hi Joshua,
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 suggest checking the W2 form that you receive from your employer. As an employee, you are only responsible for the state(s) listed in box 15 on this form. These are the states which are withholding taxes.
Hi, My husband lives and work in VA, however I work in NC but live in Va. Only Va taxes were taken out, so do I still have to file NC nonresident since no taxes were taken out for the state? And if I do have to, how will I file since I’m filing fed jointly? Will I have to file both states married filing separately? According to the NC website If I file married filing separately I have to complete either a federal return as married filing separately reporting only my income, deductions, and exemptions, or a “schedule” showing the computation of your separate federal taxable income and attach it to your North Carolina return. You must also include a copy of your joint federal. It sounds like I have to complete 2 federal returns and I have no idea what schedule they are referencing. Is that correct? I am very confused and need help. Thanks
Hi Louise,
Based on the information provided, you will only need to file a resident state return VA. Generally, if you physically work in another state, that state will withhold taxes. Sometimes, however, this is not the case and taxes will only be withheld from the state in which you live. This being said, you and your husband can still file one federal joint return.
Hi. I am married. I live in Va but work in NC. Taxes are coming out for VA but not NC. My husband works and live in VA. Do I still have to file nonresident taxes for NC since no taxes were taken out? Also if I do have to file NC taxes, how will I file since my husband did not work in NC. If i file fed jointly, then state separately, according to the NC website I have to file a separate federal return reporting only my income, exemptions, and deductions, OR a schedule showing the computation of your separate income, deductions, and exemptions and attach it to your North Carolina return. So will I be filing 2 federal returns??? and will I include both incomes on the fed adj income on the NC form. I am confused and would appreciate your help
Hi Louise,
Based on the information provided, you will only need to file a resident state return VA. Generally, if you physically work in another state, that state will withhold taxes. Sometimes, however, this is not the case and taxes will only be withheld from the state in which you live. This being said, you and your husband can still file one federal joint return.
I am an employer in Arizona and all of our appraisal work is completed in Arizona. I have an employee who lives in California in comes back to Arizona to appraise. Do I deduct only Arizona state withholding from his paychecks or do I have to do something for California?
Hi Pat,
As a general rule, taxes are withheld from an employee’s paycheck in the state that they reside and the state in which they physically earn an income. In this employee’s case, he would have taxes withheld from Arizona and California. I suggest taking a look at the IRS’ Employer’s Tax Guide for further explanation.
I recently moved from Florida to New York to work for a Federal employer, I still consider FL my permanent resident even though I have a temporary place in NY, the question is how does this affect my tax situation living in NY.
Hi Joe,
I suggest taking a look at the NY government website since each state follows their own set of residency guidelines. Even if you are still considered a resident of Florida, you will need to file a nonresident tax return for NY along with your federal return since you are earning an income there.