You might have to file multiple state returns if you lived or worked in different states during the tax year. But your home state should give you a tax credit on your resident return for taxes you pay to another state, thanks to the Supreme Court decision. Sixteen states and the District of Columbia additionally have agreements in place between them that will let you avoid filing more than one state tax return if you live and work in these jurisdictions.
Commuting to Another State to Work
You would have to file a resident tax return in your home state and a nonresident state tax return in your work state if you commute to another state to go 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. Pursuant to the Wynne decision, many states provide tax credits on resident returns for taxes you pay to other jurisdictions. The taxes you pay to your work state are effectively subtracted from any taxes you owe to your home state, so you won’t take a double tax hit.
Some States Have Agreements
Some states recognize the extra tax headache it can create for working families who live in one state but work in another, so they’ve created “reciprocal” or “reciprocity” agreements with each other. This often happens with neighboring states when residents in one state routinely cross over the border to find work in another, often a more metropolitan and better-paying area. Many Camden County, New Jersey, residents hold jobs across the river in Philadelphia. Reciprocal agreements allow you to work in a neighboring state tax-free. Your employer in your work state won’t withhold taxes from your pay earned there if it has this type of agreement with your home state.
States With Tax Reciprocity
Sixteen states and the District of Columbia have reciprocity agreements with other jurisdictions as of 2022. They include:
Arizona Illinois Indiana Iowa Kentucky Maryland Michigan Minnesota Montana New Jersey North Dakota Ohio Pennsylvania Virginia West Virginia Wisconsin
New Jersey Governor Chris Christie repealed his state’s reciprocity agreement with Pennsylvania in 2017, but it was later reinstated. These two states still have reciprocity as of 2022.
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. Even apart from the Wynne decision, that’s not so. You might live and work in Idaho for a company that’s based in California. But you would not have to file a California tax return in this scenario. The location of your employer’s corporate headquarters or home base has no bearing on your state income taxes. Nonresidents who don’t physically live or work in a state can create a state income tax liability there in a few ways. But simply working for an out-of-state company isn’t one of them. Having to file a state tax return results from being paid for work you personally did on that state’s soil. You might also have to file a nonresident return if you own rental property in another state if you’re collecting money for property you hold there.
If You Lived in Two States
You’ll have to file two part-year state tax returns if you moved across state lines during the tax year. One return will go to your former state. One will go to your new state. You’d divide your income and deductions between the two returns 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 can vary a great deal 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 state’s rules, if you can divide it at all.
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 always exempt prior to 2009. This meant that each spouse would have their own state of residency. They would owe taxes to both states. Other spouses who have just married, who are separated, or who commute to other states to work could find that 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 most states require that you include both your and your spouse’s income on their return.
