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 just moved from MA and bought a house in FL. This will be my primary residence, but I wiillI work remotely for the same company in MA. Can I ask them to stop taking the state taxes out of my check as of now? I don’t want to have to fight to get it back if MA should not have it to begin with.
Hi Ellen,
Yes, you should be able to adjust your withholding and have them stop taking MA taxes out of your paycheck, since you are no longer earning income in the state. But be aware that you will still have to file a part-year resident tax return in MA and they will tax their portion of all your income.
If i live in WV and If have a w-2 that shows that they took out WV state taxes although the Company was in MD and i worked in MD am i still required to file a non resident form for MD?
Hi Christina,
Yes, you need to file taxes as a resident in West Virginia – regardless of whether you earned any income there – and file taxes as a nonresident in Maryland, because you earned income there.
I am a resident of Florida but work in Michigan. I’ve battled the state of Michigan for 2 years in order to receive 100% of the Michigan State taxes my employer withheld. Finally, I have my refunds. However, I don’t want to keep doing this over and over (having to prove I am a resident of Florida, which has no income tax and thus I don’t have to file state income taxes). What can I do so that my employer will stop withholding Michigan State taxes? It amounts to $4,000 every year. No small change. Thanks.
Hi Edith,
It’s actually not true that living in a state without an income tax exempts you from paying income tax when you work in a state that does have one. You do owe Michigan taxes. You’ll probably get some of it back, but not all. If you’ve somehow managed to get 100% of your tax back from Michigan, good for you, but there’s nothing I can tell you to stop having Michigan taxes withheld.
I live in Tennessee (no state income tax) and worked part of last year on a project in Alabama. Although there is state income tax taken out for Alabama by my company, I expected to get it all back when I filed my taxes because I’m a non-resident. I took my taxes to be done at HR Block and they said that I’ll get some back (about $700) on almost $2300 paid in (on about 54k earned during the time in AL). Does that sound right to you? I was expecting to get the full $2300 back. Thanks!
Hi Michele,
H&R is right, you won’t get all of your Alabama tax back. Living in a state that doesn’t have an income tax does not mean that you are exempt from tax when you work in a state that does have an income tax. It’s impossible for me to know if the $700 you got back is the correct amount, but I can tell you you won’t see all $2,300.
I’m having the same issue I worked in ky which has an income tax and love in tn, but when I went to get my taxes done he said that unless I worked on a military base in ky or was in the military I wouldn’t see most of it so out of 1500 paid in income tax I’m getting 20 dollars back
I live in TN as well. In lieu of income tax we pay a high sales tax. As a truckdriver who may never step foot in the state my company is located, I am being double taxed.
Even if you live in a state that is exempt from state taxes, yet work in another state where you earn income, the state for which you earn that income from as a non-resident has the right to tax the income you earned from their state. So the amount that you pay them, you will not be seeing the full amount. From the situation you outlined it seems that there were only 2 states involved. You would not be taxed by TN, as residents you are tax exempt, however the other state will be taking their cut from your income earned in their jurisdiction.
Hello again, I also meant to ask, when entering “Employer Address” for the temp agency, should I list the Georgia address that’s on my W2, or the address of the company where I actually worked in DC?? Thanks again!