How to File Taxes When You Worked or Lived in Multiple States
Filing taxes is straightforward if you've been living and working in the same state for years. However, when you've had multi-state residency or worked across state lines within the same tax year, the process can become complex and tiring. The good news is that thanks to a 2015 Supreme Court ruling, federal law prohibits the same income from being taxed by two different states, meaning you will not be subject to double taxation.
This comprehensive guide will explain the steps and crucial considerations you need to successfully file your multiple state tax returns.
3 Reasons You May Be Required to File Multiple State Tax Returns
You may be required to file state tax returns in more than one state for a variety of reasons:
- Working and Living in Different States (Cross-Border Workers): If you reside in one state but work in another, you will typically need to file returns in both states. In this case, you must consider resident state vs nonresident state filing rules.
- Moving to a New State (Part-Year Resident): If you moved from one state to another within the tax year, you’ll need to file a part-year resident return for each jurisdiction where you established residency. Understanding residency rules by state is essential, including the 183 days rule used by many states to define full-year residency.
- Conducting Business or Owning Property: If you conduct business in multiple states, have a rental property, or are self-employed, you may have income from wages or self-employment or property that produces income, requiring multiple state filings.
Step-by-Step Guide: How to File Taxes in Multiple States
The method you use depends primarily on whether you moved or if you commute across state lines for work.
For Those Who Live and Work in Different States (Resident vs. Non-Resident Filing)
If you live in one state and work in another, you will have to file two different tax returns : a non-resident tax return in the work state, and a resident tax return in your home state.
- File Non-Resident Return First: File your return for the state where you worked. This state will tax the income from wages or self-employment earned within its borders. You will need information from this return to properly file your home state resident return.
- File Resident Return Next: File your return for the state where you live. Your resident state typically taxes all your income, including income from interest, dividends, pensions, regardless of where it was earned.
- Claim a Tax Credit: To prevent double-taxing, your resident state will generally offer a credit for taxes paid to another state. This ensures you are not taxed twice on the same income.
Key Exception: Reciprocity Agreements
Before filing, check if your home state and work state have a reciprocity agreement between states. If they do, you may only need to remit taxes in your resident state. Some employers also allow a withholding exemption for nonresident state, which can simplify the filing process.
For Those Who Moved During the Year (Part-Year Resident Filing)
When you change residences within a year, you'll need to file state income tax returns in both jurisdictions.
- Length of Stay: Filing obligations depend on how long you were physically present in each state and how much income from wages or self-employment you earned.
- Residency Duration: Most states consider you a full-year resident if you dwell in the state for a minimum of 183 days.
What to Consider When Filing Multiple State Tax Returns
- Federal Return Impact: Filing multiple state returns does not impact your federal return; they are entirely separate from your federal income.
- Reporting All Your Income: You must report all your income, even if self-employed or generating property that produces income, to avoid audits, fines, or wage garnishments.
- Military Spouses: A 2009 bill canceled the dual tax payment requirement for military service members and their spouses, eliminating the need for spouses to pay taxes in the state where their spouse serves.
Frequently Asked Questions (FAQs)
How do I file multiple state tax returns?
You can file multiple state tax returns using the same tax software, which helps manage income from wages or self-employment and other income across states.
Do I have to file taxes in two states if I moved?
Yes, if you permanently moved during the year, you typically need to file a part-year resident return in each state you resided in.
Do you pay double taxes if you work in a different state?
No, your resident state provides a credit for taxes paid to another state, preventing double-taxing.
Kristen Larson is a payroll specialist with over 10 years of experience in the field. She received her Bachelor's degree in Business Administration from the University of Minnesota. Kristen has dedicated her career to helping organizations effectively manage their payroll processes with Real Check Stubs.
