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, This is a really good article. Well, At least for beginners like myself. So Thank you for posting this article.
I am sure, someone has already asked this question and might have the similar situation as mine.
I am a resident of NY state and I work in the State of Nevada but my paychecks reflect California as Company headquarters. I understand that I have to file the resident return for NY but I am not sure if need to fill a non-resident return for Nevada or California or Both?
Can you please advice? Thank you.
Just realize that Nevada doesn’t have state tax. So Do I only need to fill resident return to NY and non-resident return to CA?
Thank you.
i recently moved to Georgia but had worked in Nevada and California before moving i made less then 7 k in the time of bouncing back and forth to California for work i was still a resident of California i haven’t officially claimed residence here in Georgia just yet not sure how i file since it 1st time i worked out California how should i file ?
Hello-
My employer withheld CT state tax on my W-2 as I worked there from Sep-Dec but was commuting between CT and Washington state where my family and leased apartment was.
Since Washington state has no tax would I still be able to claim a return from CT state or am I subject to pay state taxes to the higher of the 2 jurisdictions? If no, would I be able to attain a complete return from CT if I am not subject to any state tax in WA?
Thank you!
Hello,
I can’t seem to find the answer in the comments, can someone please help?
How should I file my state taxes if I moved to Indiana in the year and later returned to my former state Illinois, all while being employed in Illinois all year. My paystubs always showed IL withholdings even when I reported my new address in Indiana. I did not have any jobs with physical location in Indiana, I only lived there for 4 months.
Thanks so much in advance if anyone can help me with this question.
I just started a job at a company that has locations in six states that requires state tax. If an employee lives in one state and works in another state, they are only taking taxes on the state that the employee works in. I have been doing research on what they proper rule is and am finding conflicting information. Can you help? for example, an employee is a resident (lives full time) in Georgia but works in South Carolina only (does not work in Georgia). Our company has “nexus” in both states, however we are only withholding state taxes for South Carolina? Should we be withholding both?