Filing Multiple State Tax Returns

Scenarios in which you may need to file more than one state tax return

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If you’ve lived or worked in more than one state, you may need to file multiple state tax returns.  You may have to file part-year resident returns or nonresident returns in multiple states in these kinds of scenarios. 

Commuting to Another State For Work

If you commute into another state to work, you may have to file a resident tax return in your home state and a nonresident tax return in your work state.  On your resident tax return you would include all of your income, even the income you made in your work state.  This is because most states tax a resident’s income from all sources, even those from out of state.  On your nonresident state tax return in your work state, you would only include the wages you made in that state.  In most states, you’ll be able to take a tax credit on your resident tax return for the taxes you paid to your work state.

Some states have recognized the extra tax burden this creates for working families and have created reciprocal agreements.  Reciprocal agreements allow you to work in a neighboring state tax-free.  If you live and work in two states that have this type of agreement, you’ll only have to pay taxes to your home state where you live.  Just be sure to file an exemption form with your employer to avoid taxes being withheld for your work state.

Working For an Out-of-State Employer

A common myth about state taxes is that you have to pay state income taxes to the state where your employer is located.  For example, Julie lives and works in Idaho for a company based in California.  In this situation, Julie does not owe California income taxes.  The location of your employer's corporate headquarters generally has no bearing on your state income taxes. 

There are a few ways that nonresidents who do not physically live or work in a state can create a state income tax liability, but simply working for an out-of-state company does not create a state tax liability in and of itself.

    Moving to Another State During the Year

    If you’ve made a permanent move into a new state during the tax year, you’ll have to file two part-year state tax returns.  One tax return will go to your former state, and one will go to your new state.  On each return you will divide up your income and deductions between the two states. 

    Spouses Who Work In Different States

    In the past a big problem for military families was having residency in more than one state.  Members of the military are exempt from state residency and taxes in the state where they are stationed.  However, prior to 2009, their spouse would not have been exempt.  This meant each spouse would have a different state of residency and owe taxes to both states.  Since the Military Spouse Residency Relief Act was passed in 2009, this has problem should be largely eliminated.

    Other spouses who have just married or 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.  Generally, you will owe income taxes to the state where you work or generate income.  And you will also owe income taxes to the state where you live.  This goes for each spouse, unless you are working and living in states that have a reciprocal agreement.

    If you do find that you need to file returns in more than one state, as a married couple you can still file all of your state tax returns jointly if you wish.  On each state tax return, you would include only the income made in that state, but the return would be filed jointly under both spouses' names.