Where to file state taxes if you live and work in different states?

Key takeaways

• If you work in a different state than where you live, you might need to file tax returns in both states. However, this doesn't necessarily mean you'll have to pay taxes on the same income twice.
• Are you a U.S. citizen living abroad? You are still required to file U.S. tax returns and pay taxes on your income.
• If you moved from one state to another during the tax year or are splitting your residency between two states, you’ll likely need to file part-year resident returns in both states.
• The number of days you need to live in a new state before you are required to pay taxes there as a resident varies by state.
• Filing your taxes when you live and work in different states, you live abroad, or you've moved during the tax year, can be complex. Work with a Tax Pro who can help you get it right.

Do I have to file taxes in two states?  

When you live in one state and work in another, figuring out your tax situation might seem tricky. Often, you might need to file tax returns in both states. But don't worry, this doesn't always mean you'll pay taxes on the same income twice!

The first thing you’ll want to do is check if both states have an income tax. Not all states do. Places like Florida and Texas don't tax personal income. If either your work state or home state doesn't have an income tax, you're in luck! You only need to file a tax return in the state that does have the tax.

However, if both states tax your income, you generally must file a return in both. Why? The state where you work considers you a non-resident, but it still taxes the income you earn there. On the other hand, your home state wants to tax all your income, no matter where you earn it, because it considers you a resident.

Fortunately, to prevent double taxation, your home state gives you a credit for the taxes you pay to the other state. So, while you need to file two returns, you usually won't pay more taxes than necessary. This process can get complicated, so it’s a good idea to consult a Tax Pro to guide you through the specifics.

Does the state you live or work in require you to pay state income taxes?

How to file state taxes if you work remotely for an out-of-state company

If you live in one state and work in another, managing your state taxes might involve a few extra steps. This is especially so if the state you work in doesn't have a reciprocity agreement, which exempts you from filing a tax return in the state you work in, just your home state.

Here's what you need to know

• Start by filing a nonresident tax return in the state where your employment is based. This state views you as a nonresident, but still taxes the income you earned there. You’ll need the details from this return to correctly file your resident state return. Be sure to only include the income from the time you worked in the nonresident state.
• As a resident, you’re required to report all your income to your home state. However, to avoid having to pay taxes on the same income twice, your home state usually offers a credit for the taxes you've paid to the other state.
• It’s best not to withhold in both states, because this can severely impact your take-home pay. Instead file your nonresident return first, take any refund you receive, and pay your resident return. This works well unless your resident return has a higher tax than your nonresident return.

Since tax laws vary by state, it’s crucial to check the specific tax rules for both your resident and nonresident states before preparing your taxes. This ensures you comply with all requirements and take advantage of any credits or exemptions you’re entitled to. It's also a good idea to work with a Tax Pro who can help you get it right.

How many days do you have to live in a new state to pay taxes?

The number of days you need to live in a new state before you are required to pay taxes as a resident varies by state. Generally, most states consider you a resident for tax purposes if you live there for more than half the year, typically around 183 days. However, this is a general guideline, and specific rules can differ.

Here’s what you need to know

• Many states use the "183-day rule" for determining residency. If you spend more than half the year (183 days or more) in a state, you are usually considered a resident for tax purposes and are responsible for paying state tax on all your income.
• If you move to a new state but don't meet the 183-day threshold, you might still need to file as a part-year resident. As a part-year resident you only pay taxes on the income you earned while living in that state.
• Income earned in each state includes all income such as wages, self-employment, investment earnings, etc.
• Some states consider additional factors when determining residency status, like your intent to remain in the state or whether you have established significant connections such as a home, job, family ties, voting registration, and vehicle registration.
• It's also important to differentiate between your domicile (or permanent home) and residency. You can have only one domicile but multiple places of residency. Some states will tax you based on domicile if you maintain significant connections there, even if you spend fewer than 183 days in the state.
• Military members and their spouses are considered residents of the state they lived in before joining the military or getting married.

What is a part-year resident return?

A part-year resident return is a type of state income tax return for people who have moved from one state to another within the tax year, as well as those who have split their residency between two states.

Filing part-year resident returns accurately is crucial to avoid having to pay double income tax in multiple states. Work with a Tax Pro who can help you handle multiple state returns.

How to file taxes if you moved states in the middle of the tax year

If you moved from one state to another during the tax year, you’ll likely need to file part-year resident returns in both states.

Here’s what you need to know

• Each state has its own rules for determining residency status. Generally, you're considered a part-year resident if you were a resident for only part of the tax year. In addition, the state you move to generally considers your continued stay after December 31 to be part of the day count determining your residency status.
• In most cases, you should file part-year resident tax returns in both your former and new states. This involves reporting the income you earned while you were a resident in each state.
• Some states require you to report all your income for the year and then prorate the tax based on how much income was earned while you were a resident. Other states only require you to report the income earned while you were a resident.
• The method for calculating your partial state taxes can vary significantly between states. Some states will require you to calculate the tax as if you were a full-year resident, then adjust based on the portion of the year you were a resident. Others will only tax the income earned during the period of residency.
• Reciprocity agreements do not generally cover part-year status. This means that you should have withholdings from each state based on the day you moved and the next day in your new state.

When preparing to file, it's important to gather all your documents related to any earnings as well as your residency periods in both states. Work with a Tax Pro who can help ensure that you correctly apply the rules for each state and take advantage of any available credits or deductions.

Do I pay taxes if I am a U.S. citizen living and working outside of the United States?

Yes. As a U.S. citizen living abroad, you are still required to file U.S. tax returns and pay taxes on your global income. This includes wages, dividends, interest, and rental income, regardless of where you earn it.

Here's what you need to know

• All U.S. citizens must file a federal income tax return if their income meets or exceeds the standard deduction thresholds for their filing status.
• The Foreign Earned Income Exclusion (FEIE) allows you to exclude you’re a generous annualized amount of foreign earnings from your U.S. taxes. To take advantage of the FEIE, you’ll need to pass the Physical Presence Test, which means you’ll need to spend at least 330 full days in a foreign country over a 12-month period, or the Bona Fide Residence Test, which requires that you to be a resident of a foreign country for an entire tax year​.
• If you pay income tax to a foreign government, the Foreign Tax Credit (FTC) allows you to claim a credit for the taxes you paid to a foreign government. This helps prevent you from having to pay double taxes on your income.
• If you have foreign financial accounts greater than $10,000 at any time during the calendar year, you must report these by filing FinCEN Form 114, Foreign Bank and Financial Accounts Report (FBAR). Additionally, if you have foreign assets greater than $50,000, you must file FATCA Form 8938, Statement of Specified Foreign Financial Assets.
• The U.S. has tax treaties with numerous countries that may affect how your foreign income and financial accounts are taxed. These treaties can provide relief from potential double taxation and define how certain types of income, such as pensions or investments, are treated for tax purposes​.

Tax laws for U.S. citizens living aboard can be complex. Consult with a Tax Pro to ensure that you comply with all necessary laws and take full advantage of all exclusions, credits, and treaties that could help to minimize the amount you owe.

Get expert help from Jackson Hewitt

Filing your taxes when you live and work in different states, you live abroad, or you've moved during the tax year, can be complex. Each state has its own rules about residency, income reporting, and taxation, which can significantly affect your tax returns.

Working with a Tax Pro who understands multistate tax issues is beneficial in many ways. For one, this will ensure all information is correctly reported according, even with the varying rules of each state. It will also allow you to take advantage of all possible credits and deductions to maximize your refund or minimize your tax bill. Finally, you’ll be able to avoid penalties and double taxation by complying with any interstate agreements and specific state requirements.

Don't navigate the complexities of multistate tax filing alone. Work with a Tax Pro who can help ensure that your taxes are done right.

About the Author

Mark Steber is Senior Vice President and Chief Tax 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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