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.
Hello—–
I have a residence in TX and NC, however I will be working in VA for the next year and a half. When I do return to one of my homes, the majorty of the time it will be in NC. My question is: would I be able to list my TX address as my primary residence? although it really isnt—–I am a traveling consultant, and their are really no checks and balances (that i am aware of) to moniter this ( and that’s not to say that I couldnt start frequenting my home in TX more often) Any help would be greatly appreciated
Hi Andrew,
Although rare, it is in fact possible to be a resident of two states. I suggest taking a look into the residency rules for Texas as well as for North Carolina. If you have a residence in both states, that will not typically be questioned.
Hi Tax Advisor – very useful website.
I work in NYC but I’m moving to in NJ next month and will commute to the office every day. I have one source of income only.
I appreciate I will pay “resident taxes” in NJ and “non-resident taxes” in NY, and that I’ll be able to offset taxes paid in NY against taxes owed in NJ (likely leaving me with no liability in NJ). My question is what happens to the additional tax I pay in NY over and above the NJ liability (assuming higher rate of income tax in NY)? Does NY keep that, or is it refunded to me?
Also, are there any considerations relating to changing state of residency during the tax year, or is my tax liability effectively pro-rated?
Thanks!
Hi James,
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.
When you file taxes for the year, you will file a part year resident return for New York and a part year resident return for New Jersey. For each one, you will be asked the length of time you were a resident of each state. Depending on how you filled out your W4 form with your employer will determine if you receive a refund or not.
I have used the same CPA for more than 15 years. My income is derived from Internet advertising revenue direct-deposited to my Rhode Island bank account. My tax returns consist of W-2’s reporting that income paid. This has been the same every year since 2000.
In Feb 2008 I moved from Rhode Island to New Mexico, and lived there until May 2012. I now live in Florida. I did not work in New Mexico, but always had access to monies direct-deposited to my Rhode Island bank, which I would draw from to live, so considered income. My wife did work in New Mexico, as a teacher, and her school took out necessary taxes.
Now, I recently received notice from New Mexico that I owe them taxes for the years 2008-2011. They are focused directly on the income related to the ad revenue deposited to my Rhode Island account. Honestly, I do not understand tax law at all, assumed my CPA was properly filing my taxes, which should have included any state taxes, if necessary, and really don’t personally understand what my liability is.
If I owe, then I will arrange to pay. The problem is that my reputable CPA won’t return my calls, has not contacted New Mexico at my repeated requests, and at this point, I don’t know what I should address first. If I talk to New Mexico myself, they ask me questions I don’t know, since the CPA files all the taxes, and I can’t get them to respond to my emails.
What should my tax liability have been to New Mexico for those years? Where should I look in my tax returns for the information that was filed?
Lost… Please reply to my email as well, and thank you!
Hi ZG,
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 specific situation, based on the information you have provided, once you moved in 2008, you should have been filing state resident returns for New Mexico and non resident state returns for the state in which you were physically working and earning an income along with your federal tax return.
I live in NC but work for a New York based company. The NC Department of Revenue has sent my New York Employer a wage garnishment. Must a New York company comply with a garnishment from the NC Dept of Revenue?
Hi Steve,
I suggest taking a look at the U.S. Department of Labor’s website or possibly contacting them directly. They would have a bit more information for your specific situation.
Hi,
If I officially live in Florida and work online for a Florida state college – would I file a non-resident return if I were to live half the year in Colorado teaching online? Would this be considered Colorado source income?
Hi Kathleen,
Based on the information you have provided, you will need to file a part-year resident return for Colorado. You generally would need to file one for the other state as well but Florida is one of the states without an income tax so you do not need to.