Tax time can be dreaded enough when you only have to worry about getting things like dependents, credits and deductions right. If your life straddles state lines, this introduces a whole new set of requirements. You must file multiple tax returns, but most states work together to make sure you're not taxed too much or unfairly.
Working in More Than One State
You must file a tax return in the state where you live, reporting all of your income for the year, regardless of where you earned it. Then you must claim the income you earned in another state – but only that income -- on that state's tax return. For example, if you live in New Jersey and worked in both Delaware and Maryland during the tax year, you would owe three tax returns. You'd file a resident tax return in New Jersey for all of your earnings and nonresident returns in Delaware and Maryland, reporting only the income you earned in those locations.
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Some jurisdictions, like Maryland and the District of Columbia, share a lot of taxpayers because they're in close proximity. They have special rules so you only have to file a state tax return in the jurisdiction where you actually live. Don't assume you absolutely must file multiple tax returns – check with a local tax professional or accountant.
Many states give tax credits for income taxes you’ve paid to other jurisdictions for the money you earned there. For example, if you have to pay Maryland $1,200 for income you earned in that state while you were living in New Jersey, and because New Jersey is also taxing you on that income, New Jersey will give you a $1,200 tax credit -- you don't have to pay that $1,200 twice.
Living in More Than One State
If you lived and worked in two or more states during the year – you didn't just work in multiple states -- touch base with an accountant or tax professional because the rules for this are complex. Depending on how long you lived in each location, you may be considered a part-year resident in one or more of them, and this requires that you file a resident return there. If you're a part-year resident, you would have to pay taxes on all income you received from any state while you were living in that state, just as you would if you had lived there all year.
If you lived in more than one state and must file more than one resident return, you may be able to file something called an apportionment schedule to avoid paying taxes on all of your income to multiple states. The schedule determines how much of your overall income you earned in each location and arrives at a percentage. You would only have to pay that percentage of your calculated taxes. For example, if you earned $60,000 overall, but only $30,000 of that was earned after you moved to another state, your apportionment percentage for the second state is 50 percent -- $30,000 divided by $60,000. After you determine what you owe, you would only have to pay half to that state.
States Without Income Tax
Seven states don't tax income as of 2015: Wyoming, Texas, Nevada, Alaska, Washington, South Dakota and Florida. Two more states – Tennessee and New Hampshire – only tax dividend and interest income. If you earned income or wages in any of these jurisdictions, you would not have to file an additional tax return there. If you live in one of these states, you would only have to file tax returns in other states where you earned income.
- TurboTax: Multiple States – Figuring What’s Owed When You Live and Work in More Than One State
- RapidTax: State Income Tax – Living in One State, Working in Another
- Comptroller of Maryland: When You Live in One State and Work In Another (PDF)
- Military Authority: Paying Taxes When You Live or Work in More Than One State
- RISMedia: Nine States With No Income Tax