If you lived and worked in the same state this past year, filing taxes is a fairly straightforward process. But how do you file taxes if you lived in two states? Or if you worked in multiple states? Each state wants its fair share of your income, which means you may owe taxes to multiple states depending on your circumstances.
The good news is that living or working in two or more states doesn’t affect your federal tax return. However, you’ll have to navigate through filing multiple state tax returns. Below, we’ll go over the process for filing taxes if you lived in two states, as well as how to file taxes if you worked in two different states.
- Reasons You May Have to File Taxes in Multiple States
- How to File Taxes Living in Multiple States
- How to File Taxes Working in Multiple States
- Examples For Filing Taxes in Multiple States
- Key Takeaways on Filing Taxes in Multiple States
Reasons You May Have to File Taxes in Multiple States
There are plenty of reasons why you may end up having to file taxes in more than one state. Aside from owing taxes in multiple states for moving or working in a different state from the one where you live, you may also need to file taxes in multiple states if you own rental property in another state or conduct business in multiple states. We’ll go into each situation in more detail below.
1. You work in a different state from where you live
If you live in one state but work in another, you may need to file taxes in both. For example, let’s say you live somewhere in Fairfield County, Connecticut, and commute to New York City every day for work. Or, let’s imagine you and your spouse are married filing jointly, and one works in another state from where you two live. In these cases, filing taxes in two states is necessary.
However, you usually don’t have to pay taxes in both states. Instead, the state where you work will most likely collect income taxes, and not the state where you live.
The reason why we say you usually don’t have to pay taxes in multiple states is because some states have reciprocal agreements. This means that two states have an agreement with each other that allow you to work in a neighboring state without being subject to taxation. For example, if you live in Virginia but work in Washington, D.C., Kentucky, Maryland, Pennsylvania, or West Virginia, you won’t have to file multiple state tax returns if you meet the criteria.
2. You moved to a new state
Another reason you may have to file taxes in multiple states is if you lived in one state and moved to another during the same year. For example, if you and your spouse were residing in Maine and decided to move to Florida to escape the cold, you may have to file multiple state tax returns.
However, this depends on a few criteria, such as whether both states withheld income taxes from your paycheck, how long you worked in each state, and how long you lived in each state.
3. You conduct business in other states
If you’re an independent contractor and operate in multiple states, you may have to pay state income taxes to the states you work in. The more states you conduct business in, the more difficult and time-consuming it could be to file your state tax returns. This is why seeking out help from tax preparation services is important. Our experts at Community Tax will help you with income tax preparation, so you can have peace of mind knowing all bases are covered, no matter how many states you do business in.
4. You own rental property in another state
Do you live on the east coast and have a vacation home on Pacific you rent out during the summer months? Or perhaps you own a few properties in a college town the state over that you rent out to students? If so, these income-producing properties may require you to file a separate tax return in that state.
How to File Taxes Living in Multiple States
Now that you know why you may have to file taxes in multiple states, it’s important to know how to file taxes if you lived in two states. You never know where life is going to take you, and if you have to uproot and move to a neighboring state or across the country, you’ll still have to pay both states for living within their lines.
Each state has its own separate requirements when it comes to collecting taxes, especially for special cases such as new residents. However, most states follow a relatively similar procedure of having residents who lived less than a year in their state complete a part-year state tax return. While non-resident tax returns are for those residing in one state and working in another, part-year tax returns are for those who lived in more than one state during the course of one year.
When filing your part-year tax return for each state you lived in, you will have to divide your income and deductions up between the two states you resided in. However, each state will have its own apportionment percentage, or one may require you to report all of your income, while the other state only requires you to report the income earned in their state. So, check your state’s tax laws to determine how to report your income.
How to File Taxes Working in Multiple States
When you get hired for any job, you will be required to file a W-4 Form to withhold a percentage of your paycheck for federal tax purposes. However, states that collect income tax will have you file their own version of Form W-4 to withhold state taxes. If you’re wondering how to file taxes if you worked in two different states, you’ll most likely need to file a non-resident tax return to pay state taxes in that state. You are considered a non-resident if you have a permanent address in one state, but receive income in another state where you don’t reside.
When it comes to filing taxes if you worked in two different states, determine whether the state you’re living in has a reciprocal agreement with the state you’re working in. Currently, there are sixteen states, along with the District of Columbia, who have reciprocal agreements. These states include:
If your state has a reciprocity agreement with another state, you won’t have to pay taxes in the state where you work. Instead, you will pay all of your taxes in your home state. However, make sure you submit an exemption form with your employer, so they know to withhold taxes from your paychecks by your work state.
If you live in a state that does not have a reciprocity agreement with the state you work in, you will simply file taxes following each state’s reporting requirements. However, this doesn’t mean you will be taxed twice. Instead, you will receive a tax credit from your residence state for the taxes you paid in the state you worked in.
For example, let’s say you live in Georgia, but own a rental property in Alabama. You earned $30,000 in revenue from the property and paid Alabama $3,000 in taxes. However, Georgia also taxes your $30,000 income from the property because you live in that state. Instead of collecting another $3,000 in taxes, Georgia will give you a $3,000 tax credit because you already paid taxes on the property in Alabama.
Examples For Filing Taxes in Multiple States
Below, we’ll go over a few hypothetical cases where you may have to file taxes in multiple states.
Example 1: You live in Vermont but work in Massachusetts. In this case, you will file as a resident of Vermont and a non-resident of Massachusetts.
Example 2: You live in Oklahoma, and your father in Kansas passed away, leaving you the family farm that continues to do business. You will have to file as a resident of Oklahoma and as a non-resident of Kansas until you sell the property.
Example 3: You live in Michigan and work remotely for a tech startup in Silicon Valley in California. You will file as a resident of Michigan, and Michigan only. It does not matter where the headquarters of your company is located. Instead, you are taxed on where the work was completed, which in this case, was Michigan.
Key Takeaways on Filing Taxes in Multiple States
Filing taxes in two states can be a headache, especially if you don’t know which form(s) to fill out and how to apportion your taxes if needed. That’s why consulting with a professional tax expert is important. Our team of dedicated tax professionals will assist you with filing taxes if you lived in two states and with how to file taxes if you worked in two different states. Not only that, Community Tax can help with a variety of other tax-related issues, such as tax resolution and tax assurance.
Bottom line, when tax season comes around and you need to file taxes in multiple states, keep these key takeaways in mind:
- If you were a permanent resident in two or more states in one year, you might need to file two part-year tax returns
- If you reside in one state but work in another, you may need to file a state tax return for the state you work in, the state you live in, or both
- Some states have reciprocity agreements with each other, which means you will only have to pay taxes in the state you live in if you meet the criteria