Did you know that if you work in multiple states for an extended period of time that you might have to file a state tax return for each state? Yikes, I know. Don’t worry I’ve got this article for you and it’s really straightforward.
Have you moved and want to file taxes in a new state? Did you recently graduate from college and want to apply for an internship or job? You’ve come to the right place! Here are step-by-step, easy to follow instructions outlining how–and where–to file your income taxes if you’re living in multiple states (or are just filing them in a new state).
In order to file state taxes for multiple states, you must first determine which states you need to file in.
If you live and work in different states, then it’s likely that you’ll have to file in both of them. If you’re a student or have an investment property, then you may have to file in more than one state as well.
Once you’ve figured out which states require taxes from you, it’s time to start gathering information about each one. You’ll need:
-Your social security number (SSN) or individual taxpayer identification number (ITIN) for each state. This is usually found on your W-2 form or 1099 form from each employer/payer; -Names and addresses of any dependents who live with you; -The amount of income received from each source during the year; -Any expenses incurred during the year that are deductible against that income (such as mortgage interest payments).
How to file state taxes for multiple states
Your new location may require you to pay additional state taxes or even file multiple state tax returns, depending on where you live. While most states require you to pay state income taxes on your payroll earnings, nine states do not impose a state tax: Alaska, Florida, Nevada, New Hampshire, Texas, South Dakota, Tennessee, Texas, Washington and Wyoming.
Figuring out your new tax situation after a move can be confusing. A Nov. 2020 survey conducted by the American Institute of Certified Public Accountants (AICPA) and Harris Poll found that more than 70% of respondents were not aware that working remotely in a state different from their employer’s location can impact their state tax returns and how much they may owe to each state.
But how do you know when you may have to file with different states? Here are a few situations when you may have to file with more than one state this tax season.
You Live in One State and Work in Another State
If you live in one state but happen to work in a neighboring state, you may have to file a state tax return with both states. However, if your state has a reciprocity agreement with that state, you will typically only need to pay state taxes to the state where you live.
Let’s say you live in Arizona but work in California. Arizona charges a top state tax rate of 4.5% and California charges a top tax rate of about 12%. Since Arizona taxes its residents on income earned in any state, you will pay Arizona state taxes on your California earnings. You won’t pay taxes in both states.
Irina Petrashkevich, certified public accountant (CPA) and senior manager for tax policy and advocacy for AICPA says many states have entered into reciprocal agreements to ensure employees who reside in their states are not also subject to tax in other states where they may go to work.
“This is intended to provide tax simplicity to taxpayers. Reciprocal agreements typically specify that employers should withhold income taxes on a nonresident employee’s wages only for the employee’s resident state,” Petrashkevich says.
“Each of the reciprocal agreements has their own rules and require forms to be completed by employees in order for employers to be exempt from withholding under the agreements,” Petrashkevich says. If you’re unsure about what rules apply to you, she advises that you speak with a tax professional.
You and Your Spouse Work in Different States
If you and your spouse work in different states, in most cases you will only need to file a state tax return where you live—even if your employer is in another state.
There are some instances where you are required to file multiple income state tax returns when filing your taxes. This is the case if your employer withheld state taxes in the state where you worked but didn’t live. For most states, you would file a nonresident state tax return in your state of work. You can review your paycheck stub or Form W-2 to determine which states withheld state taxes.
But, of course, it depends greatly where you work and reside, because each state has its own rules regarding nonresident state tax returns. Again, if you’re unsure, consider hiring a certified public accountant (CPA) or tax preparer to determine your state tax filing requirements.
You may also be able to get some information from your state’s tax department.
You Lived in Two States in a Year and Worked Remotely
You may need to file multiple state tax returns if you lived in different states during the same year and worked remotely. This is because you may be considered a part-year resident of those states, which may change how much you pay in taxes.
A part-year resident is someone who is a resident of two states within the same year. For example, let’s say you lived in Louisiana for more than five years but decided to move to Georgia in June 2020, with plans to make it your new residence. In this case, you may need to file a part-year resident tax return with both states.
What to Consider When Filing Multiple State Tax Returns
First, you need to understand the different rules regarding the states where you lived or worked throughout the year. You can find the tax office and information for any states where you lived or worked during the year via the Federation of Tax Administrators.
Here are other items you should consider:
- If you plan to prepare your own taxes, be ready to pay more than someone who only has to file one state tax return. Some online tax filing software programs like TurboTax and H&R Block will charge a fee per state tax return (about $50 per state).
- Do your best to pay enough state taxes by checking your state tax withholdings throughout the year. One way to do this is to use a state tax withholding calculator online or speak to a CPA if you need assistance. If you determine that you are not paying enough state taxes, contact your human resources department at work to increase your state tax withholdings.
- File a nonresident state tax return if you live in one state but perform work in another and taxes were withheld from your pay.
- Your home state should offer you 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. This would mean you actually have two resident states.
Frequently Asked Questions (FAQs)
What state will I be taxed in if I work remotely?
You will file your taxes for the state you reside and work in if you’re working remotely, regardless of where the company is actually located. As long as you don’t work in another state for more than 30 days out of the year, you’ll only need to file taxes in the state you live in.6
How do I file a nonresident state tax return?
Check the rules and regulations for the state you worked in if you must file a nonresident state tax return there. You must still claim the income made in that state, even if you don’t owe taxes. This can include wages from a job, money won while gambling, and any income made on rental homes.
How filing multiple state returns impacts your federal return
The short answer is that it doesn’t. Your federal income tax return is separate from your state tax returns. You report your federal return to the IRS and your state return to the state’s entity, such as a department, commission, board or state treasury.
I live in one state and work in another: How do I pay income tax?
- If you live and work in different states or moved during the year, you may need to file more than one state tax return.
- If you’ve been living in a different state from your employer for the entire tax year, then you may need to file a “non-resident” state return.
- It’s better to err on the side of caution when filing, since a failure to file in a given state can come with costly penalties.
First there was the pandemic. Then came the “Great Resignation.” All of the job losses, job turnover and new opportunities seized over the past few years have meant a lot of moves made – literally – to different states.1 The real estate market has been so crazy (January 2022 was the hottest January in recorded history)2 due in large part to rapid job turnover and the newfound ability for many people in corporate America to work from home or “work from anywhere.”
While this unprecedented level of locational freedom can be an incredible thing that allows us more time with family, a bigger backyard, a lower cost of living and more, it can also become a complicated picture when it comes to taxes. For example, if you live in one state but work in another, how do you file, and where?
First, the good news: Per federal law, two states cannot tax the same income.3 So you can breathe a sigh of relief if you were worried about that. With that said, there are a few things to know to make sure that you file your taxes correctly and avoid a potential penalty.
You may need to file more than one state return
Although the pandemic has brought the need for multiple state returns into the public eye, it’s nothing new. For decades, anyone who moved mid-year or who drove across state lines to get to work has had to consider filing more than one return.
For starters, not everyone will have to file taxes in two states, because some states have what’s known as “reciprocity” – which is an agreement that says workers in that state who live elsewhere are required to file state taxes only where they live.4 Your tax preparer can let you know the specifics for your state. Just don’t count on reciprocity – until you confirm otherwise, it’s best to plan to file two returns: one in the state where you live, and another in the state where your employer is located.
Filing a return if you moved mid-year vs. being settled all year
If you’ve been living in a different state from your employer for the entire tax year, then you’ll need to file a “non-resident” state return, which certifies that, while you earned income in that state, you did not live there for any length of time.5
But if you were living in the same state as your employer for some portion of the year (even a single day) and then permanently moved to another state, you’ll be known as a “part-year” resident, and two returns will be required.6 ( That is, of course, unless you happen to live in a state with reciprocity or in one of the states that don’t charge income tax at all, including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.7)
If you’re a part-year resident, you’ll start by taking a look at each state’s rules. While some states will separate the income you earned while living in their state from the income you earned while living in another state, others may calculate the tax you owe on all income earned and then calculate what you owe based on an apportionment percentage.8 Essentially, this means you’re figuring out what portion of your income will be taxable in each state. In this case, you’ll complete what’s known as an “apportionment schedule,” which is a form that’s found in your state’s return for “nonresidents” or “part-year” residents. Once you get your apportionment percentage, you’ll use that for all of your calculations for that state’s taxes for the year.9
A few exceptions to the rule
As if the picture weren’t complicated enough, there are, of course, a few exceptions. For instance, if you moved mid-year and still own a home in the same state as your employer, or if you still have a driver’s license or a voting registration in the same state as your employer, then those things can be taken into consideration when you file, and this can determine which state you’ll owe or which state you’ll owe the most.10 Also, there is what’s known as a “183-day” rule in some states that makes you responsible for paying taxes as a resident if you resided in that state for 183 days or more during the calendar year.11 Again, your tax preparer can help you do the math to calculate your exact number of days as a resident.
Although this may seem like a lot to process if you’ve never moved mid-year or worked remotely in a different state, your situation is nothing the IRS and a good tax preparer hasn’t seen before, so don’t stress. If you’ve got questions about where to begin, one of the best places to start is with your employer. Your form W-2 not only shows your federal tax details – it will also show your state withholding.12 If you informed your employer of your residency change, then your employer should have been withholding taxes for you in that state, making your next steps easier.
Here are some practical steps you can take after moving:
- Make sure you inform your employer on your move and provide a new W-4 and any state/local withholding forms
- Consider if you need to adjust your employer’s state tax withholding or make any state tax estimated payments
- Keep a journal of the days spent working in each state to facilitate the apportionment