Filing Taxes When Living in One State and Working in Another

living in one state while working in another

If you work in one state and live in another, you might be required to file more than one state income tax return. This is common for remote employees, but it also applies to employees who cross a state border to get to the office. Other circumstances, like moving during the year, could also affect which state you’ll file in.  

Where do I file state taxes if I live and work in different states?  

If you earn income in one state while living in another, you should expect to file a tax return for the state where you are living (your “resident” state). You may also be required to file a state tax return where your employer is located or any state where you have a source of income.  

It’s important to note that if you live or work in one of the nine U.S. states that do not charge income tax, you probably won’t be required to file a return for that state. States that do not charge income tax include: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. 

Do I have to file taxes in two states?  

It depends. Some states have an agreement that says workers who live out of state only have to file in the state where they live. These states have what is known as a reciprocal tax agreement or reciprocity.  

If your work state and home state do not have reciprocity, you should expect to file two state tax returns: one as a resident for the state where you are living, and one as a nonresident for the state where you work. Being a nonresident means you have not lived in a state where you earn income for any part of the year.    

How to avoid double taxation when filing in more than one state

Federal law dictates that two states are not allowed to tax the same income. If the states do not have reciprocity, then you’ll typically get a credit for some or all of the taxes withheld by your work state. This is often referred to as the Credit for Taxes Paid to Another State. See how this credit works with TaxSlayer.   

It’s important to note that many states tax income at different rates. If your home state’s income tax rate is lower than your work state – or vice-versa – the credit may not cover the full amount of state tax you paid.  

For example, if your home state has a 3% income tax, and your work state has a 5% income tax, your credit amount will offset the 3% tax imposed by your home state. The remaining 2% will still be paid to your work state.

How to file taxes if you moved states during the year   

If you permanently moved to another state, you’ll need to file two state returns: one for each state you lived in during the tax year (assuming both states charge income tax).  

You may be able to claim part-year residence, which will allow you to divide your income between the two states instead of paying taxes twice.   

Note that each state has its own rules for determining residency and how you should indicate your status on the tax forms. Generally, you’re considered a statutory resident by any state where you spend more than 183 days (half the year), and you may be liable for taxes in that state. To be certain of your residency status, check with the Department of Revenue in your state to learn what is required for your situation.   

Be sure to let your employer/HR department know when you move to a new state, and ask about adjusting your state income tax withholdings to avoid an unexpected tax bill when you file your return.

How do I file state taxes if I work remotely for an out-of-state employer?   

When you’re a fully remote employee, you should expect to file one tax return for the state where you live and one for the state where your company is based (where you are earning money).  

Like traditional employees, remote employees typically pay income tax to their resident state. But Arkansas, Delaware, Nebraska, New York, and Pennsylvania apply something called a “convenience of employer” test to determine how remote workers’ wage income should be taxed. If 1.) your company is based in one of these states and 2.) it is determined that you are working remotely out of state for your own convenience, then your income could be taxed by your employer’s state under this convenience test. 

Can I still file jointly if my spouse worked in a different state than I did?  

You can file your federal income tax return jointly and report your combined earned income. For state taxes, you’ll report both of your incomes on your resident state return (if your state charges income tax). In addition, you’ll file a separate return for the state where you/your spouse works and report only the income earned in that state. 

If you and your spouse live in separate states, it’s important to check the specific rules and regulations in your state to understand what’s permitted. In Virginia, for example, you can’t file a joint return if one spouse is a resident and one is a nonresident (mixed residency).  

What state do I file if I’m in the military and stationed outside of my resident state?   

Military service members have a “legal domicile” or state of legal residence (SLR). This is where you will pay state income taxes. If you are stationed somewhere other than your SLR, you are exempt from paying taxes to that state unless you are earning civilian income in addition to your military pay.   

Military spouses may be allowed to claim the same state of legal residence as their partner, but they must meet certain requirements. For more info about this, read State Tax Filing Info for Working Military Spouses. 

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