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’m an employer in CA and I have adjunct on-line faculty in other states (Texas). I have been taxing their earnings in CA. I’m now being told this incorrect and these individuals since they work from home in Texas don’t pay CA taxes. Is this correct? They are instructing students in CA only.
Hi Claudia,
That is correct. For employees, taxes should be withheld from the state where they are a resident and the state where they physically work.
Hi there,
I currently work and live in Washington State (no state tax) and am considering a new job in Vermont (has state tax). If I receive a signing bonus and lump sum moving expense check immediately after accepting the offer, and before I actually ‘move’ to Vermont where the company is located, can I be exempt from paying Vermont state taxes on those lump sums?
Appreciate your response; thanks!
Hi Stacy,
You will most likely be taxed in Vermont for this signing bonus However, I do recommend checking with your pay roll department as they will be able to definitely tell you whether or not it will be taxed there.
This past year from Jan to Aug. I worked in VA …Then in August took a job in Nevada, but settled legal residence in California. I also will be filing single this year and understand No Income tax in Nevada .. My question is How will I need to file all my taxes this year? Also is there anything special I have to do living in one state and working in another that does not tax income..
Thanks for any advice
Hi JK,
This year, you will need to file a part-year resident return in VA and a part-year resident return in CA. On each of these returns, you will state the time period that you lived in each state.
Considering your situation remains the same for future tax years, you will only need to file a resident state tax return for CA.
Please keep in mind that you will need to file these state returns WITH your federal return as well.
Hi Tax Advisor
When I filed my resident & nonresident state taxes last year, I received a refund/credit ($1832) from my resident state that I had to turn around and pay the nonresident state of $2007 where I earned my money. Even thou I itemized last year, I did not receive a 1099G form. How will I figure out the taxable portion of my state refund when it was used to offset the taxes due to the non-resident state especially since I didn’t really get a refund. I had to pay the full amt plus $175 to the other state. Or do I just leave line 10 blank. Also I do not plan to itemize this year. Thanks in advance.
Hi Paul,
If you itemized deductions last year and deducted your state and local income tax, your state income tax refund may be taxable even if you didn’t receive your 1099-G.
To find your state income tax refund you can either get your refund amount from your copy of your state tax return (line numbers and locations vary by state) or go to your State Department of Revenue website to look up your state issued 1099-G records.
My husband and I have a home in Mississippi, however for the last year we have been living in Texas. His company is based in Mississippi and we have Mississippi taxes held out. My question is which state do we file in. We are legal residents of Texas, our drivers license are Texas, but we file homestead in Mississippi.
Hi Cheryl,
I suggest taking a look at another article on our website. This article is titled, “How to File State Taxes If You Have Dual Residency“, and will help to answer your question in detail.