Filing Multiple State Tax Returns
Several circumstances require that you file more than one state return
You might have to file multiple state tax returns if you lived or worked in more than one state during the tax year. In many cases, all states involved will want their cut of what you earned. You might have to file a part-year resident return or a nonresident return in a state other than the one in which you live, but exceptions exist to this rule.
If You Commute to Another State to Work
You'd file a resident tax return in your home state and a nonresident tax return in your work state if you commute to another state to work. All your income from all sources goes on your resident tax return, even the income you earned in your "work" state, but you would only include the wages you earned in your work state on your nonresident state tax return for that one.
This doesn't necessarily mean that you'll take a double tax hit on your out-of-state income. Many states provide tax credits on resident returns for taxes you paid to other jurisdictions. The taxes you pay to your work state are effectively subtracted from the income you report in your home state.
Some States Have "Reciprocity"
Some states recognize the extra tax burden this creates for working families and they've created "reciprocal" or "reciprocity" agreements with each other. This typically happens with neighboring states when residents in one routinely cross over the border to find work in another, often a more metropolitan and better-paying area. For example, many Camden County, New Jersey workers hold jobs across the river in Philadelphia.
Reciprocal agreements allow you to work in a neighboring state tax-free. You’ll only have to pay taxes to your home state if you live and work in two states that have this type of agreement, but you must file an exemption form with your employer to avoid taxes being withheld from your pay by your work state. Each state has its own form for this, so check with your employer to make sure you get the correct one.
Sixteen states and the District of Columbia had reciprocity agreements with other jurisdictions as of 2018. They include:
- New Jersey
- North Dakota
- West Virginia
New Jersey repealed its agreement with Pennsylvania in 2017, then reinstated it. As of 2019, these states still have reciprocity.
If You Work for an Out-of-State Employer
A common myth about state taxes is that you have to pay them to the state where your employer is located. That's not so. Julie might live and work in Idaho for a company based in California, but Julie would not owe income tax to California in this scenario. The location of your employer's corporate headquarters generally has no bearing on your state income taxes.
There are a few ways in which nonresidents who don't physically live or work in a state can create a state income tax liability, but simply working for an out-of-state company isn't one of them. Tax liability to a state generally results from being paid for work you personally did or services you performed on that state's soil.
You might have to file a non-resident return if you own rental property in another state because you're collecting money for property you own there.
How to File Taxes If You Lived in Two States
You’ll have to file two part-year state tax returns if you move across state lines during the tax year. One return will go to your former state, and one will go to your new state.
You'd generally divide up your income and deductions between the two states on each return in this case, but some states require that you report your entire income on their returns, even if you resided there for less than the full year.
This process, too, can vary considerably by state. Check each state's tax return for an apportionment schedule to find out how you should go about it. The schedule should explain how to divide up your income depending on that's state's rules—if you even can divide it. You might also ask your employer's human resources department for guidance or touch base with a local tax professional.
Spouses Who Work in Different States
A big problem for military families in the past was having residency in more than one state. Members of the military are exempt from state residency and taxes in states where they're stationed, but their spouses weren't necessarily exempt prior to 2009. This meant that each spouse would have a different state of residency and they would owe taxes to both states. Then the Military Spouse Residency Relief Act was passed in 2009, and the legislation has largely eliminated this problem.
Other spouses who have just married, who are separated, or who commute into different states to work could find themselves in a situation where they owe taxes to more than one state. You can still file your state tax returns jointly if you're married and you find that you need to file in more than one state, but you would generally include only the income made in that state on that return, not income for both spouses.
The General Rules
- File a nonresident state tax return if you live in one state but perform work in another.
- Check to find out if your home state offers a tax credit for taxes you must pay to another state.
- Find out if your states have reciprocity agreements if you live in one and work in another.
- You might have to apportion your income and deductions if you move during the tax year because you'd actually have two resident states.