Chief Tax Information Officer
Published on: February 16, 2021
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Multi-State taxes often appear complex. With many Americans working from home this year and not traveling to a different state for work, there is a lot more room for error when filing state taxes. Whether taxpayers worked in one state and lived in another, lived in multiple states during the year, or their spouse works out of state, they will likely have more complicated state tax returns.
Most Americans will owe state taxes where they live. When taxpayers work in a different state from where they live, they generally owe taxes to the state where they work as well. When they move to a new state it can be even more complex.
Most taxpayers must file a tax return that includes all income in the state where they live. If they work in a different state, they might have to file a return for that state with only the income they earned there. For example, assume a taxpayer lives in New Jersey but commutes to New York for their job from January to March, but from March to December they worked from home in New Jersey because of the pandemic. The taxpayer will file a non-resident New York state tax return for their wages from January through March. And they will file a resident New Jersey state tax return from March through December.
The taxpayer will get a credit for the taxes they paid to New York for that short period of time. This is how taxpayers who worked in one state but lived in another have typically filed their returns. The only difference is the time the taxpayer physically worked in a different state was significantly shorter.
First, all states have requirements for residency and generally require the taxpayer to live in that state for 180 days (some states vary). They may also have requirements including:
Before taxpayers begin to file taxes, they should check the residency rules for each different state they’ve lived in. Some states vary on when they consider taxpayers full-time residents.
As an example, if a taxpayer lived in Virginia and moved to Florida during the year, the wages they earned during the time they lived in Virginia were taxed until the day they officially moved to Florida. After they moved, they began paying taxes to Florida and ceased paying Virginia state tax.
The taxpayer will have to file two part-year resident returns for the length of time they lived in each state. Check the rules for each state on what income to report. Income from interest, dividends, and pensions is sometimes divided between the two states based on the months in each state.
These taxpayers and their spouses don’t have to pay income tax to their out-of-state employer’s state. They only have to pay taxes to the state where they lived and worked. As long as they didn’t move to a new state during the year, taxpayers only have to pay taxes to the state they live and work in.
Taxpayers are considered non-residents when they don’t live in the state at any time during the tax year, but they received income from that state because they:
Some states have reciprocity agreements in place with neighboring states. These allow residents of one state to work in other states without having taxes from that state withheld from their pay. In these special cases, residents would not have to fill out a non-resident tax return in the state they work, assuming they followed all the guidelines. There are 16 states and the District of Columbia that have reciprocity agreements. Taxpayers should speak with their tax professional to see if their state has a reciprocity agreement.
Avoid the complexity of filing multiple state tax returns alone this year and visit a local Jackson Hewitt office today. Jackson Hewitt Tax Pros are well prepared to help navigate multiple state taxes and file your tax return successfully this year.
About the Author
Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.
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