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.
Taxes when living in one state but working in another
All taxpayers must file a tax return that includes all income in the state where they live. If they work in a different state, they will 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.
How to file taxes if you lived in two states
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:
- Registering to vote in that state
- Obtaining a driver’s license in that state
- Physical residence in that state
- Intention to be a resident in that state
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.
Filing taxes if you work for an out-of-state employer or if your spouse works out of 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.
Non-resident state tax return considerations
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:
- Worked in the state but did not live there
- Received income from sources (rental properties, business, etc.) within the state
- Received income as a beneficiary of an estate or trust from sources within the state
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.