Live In One State Work In Another Taxes


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How To Do Taxes If You Work Remotely Or Live In One State And Work In Another

State Income Taxes Working in One State & Living in Another

It’s not unusual to live and work in a different state, particularly if you live in a major metro area. But it can be a pain figuring out how to deal with the tax implications of having a “home state” and a “work state.”

But there’s no need to panic â most likely, youâre not going to be paying twice as much in taxes, although it can get complicated. Read on for help on how to handle your taxes if you live in one state but work in another.

Research Your State’s Waiting Period

Beyond a first-day rule, your state will also have a waiting period that refers to the amount of time you get to spend earning income before the state will start taxing your income. This will again differ according to the state, and some places such as Illinois, Arizona, and Hawaii don’t tax workers who are in their state for visitation. However their waiting period looks like, you may still be required to file a tax return for that state.

Determine The Percentage Of Your Income Earned In Each State

Once you know how much income you earned in each state, determine what percentage of your total income each portion made up. For example, lets say you made $100,000 in 2021. You earned $40,000 in Alabama, and $60,000 in your new home state of California. Youd claim 40% of your income in Alabama and 60% of your income in California.

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Be Wary Of The New York

As we previously explained, there are many states with reciprocity agreements that save taxpayers from having to file tax returns in two places. Unfortunately, though, not all neighboring states have such agreements.

If you live in Connecticut, for example, but work in New York, you’ll have to file both a nonresident tax return in New York and a resident tax return in Connecticut. You’ll be allowed to claim a tax credit for income tax paid in New York on work you do there by filing a Form CT 1040, Schedule 2, and attaching your New York return, according to the state of Connecticut’s official online portal .

Another problem is that the credit amounts to the lesser of the tax paid to New York or the tax that Connecticut would impose on the wages, meaning that if you earned a lot of money in New York, you still owe taxes in Connecticut even with the credit. If the amount owed is $1,000 or more, you’ll also be required to file quarterly estimated tax payments to Connecticut, due April 15, June 15, September 15 and January 15. See, we warned you this was going to get complicated .

Your Federal Taxes Dont Change

Texas Has the Fifth

Lets start with something simple. No matter where you work , you need to file an individual federal tax return using IRS form 1040. Whether you live and work in Ohio, live in Illinois and work in Indiana, or work as a traveling physician in multiple states, your federal tax situation does not change. Federal taxes are the same across all states.

This goes for W-2 employees, self-employed individuals, freelancers, or anyone earning an income in the United States. All US taxpayers fill out the same federal tax forms and file them with the IRS.

However, when it comes to state taxes, this is where things start to get complicated.

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Moving To Another State

What if you live and work in one state for part of the year, and then pack your bags and move to another state to take another job during the same tax year? In this situation, you’re technically a resident of two states during the year. This means that you’ll need to file two separate state tax returns for the year.

Depending on the state, you may be able to pay taxes as a part-year residence. Most states allow for a person to be a part-time resident for tax purposes if they move into the state during the year with the intent of becoming a resident or leave the state with the intent to reside elsewhere. By doing this, you can divide your income between the two states and not pay tax on the same income two separate times.

Again, this will heavily depend on whether the state at issue has a part-year residence status. Check with the state’s tax agency to learn these rules.

How Reciprocal Agreements Work

Although it may begin to feel like it when you start asking questions at tax time, youre not the only one who lives in one state and works in another. Some states have planned for this and created reciprocity agreements to make your life easier. Through these agreements, you can live in one state and work in a neighboring state without paying taxes there. Instead of paying taxes where you work, you will pay taxes in your resident state, which is the state where you live.

Pennsylvania and New Jersey, for example, have such an agreement. If you live in Pennsylvania but work in New Jersey, you pay your tax to Pennsylvania where you live. New Jersey will not withhold any state money from your paycheck. They will of course continue to withhold federal taxes as required.

Seventeen different states have these types of agreements in place, so its worth asking your employer if one applies to your situation. Your companys payroll department should absolutely know about any applicable reciprocity agreements. If they dont, your states Department of Revenue office will.

Dont panic if your employer makes a mistake. Lets say you start your new job in New Jersey and file a tax exemption form because you live in Pennsylvania. Somebody made a mistake, however, and the payroll department didnt get the memo. When you get your paycheck, you see that your employer withheld New Jersey income tax from your check even though they werent supposed to.

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Be Aware Of Telecommuting Complications

For many years, Sarah worked and lived in New Mexico, the same state in which her employer was located. Then she and her family moved to Colorado, where she continued to work for her employer.

So, what’s the problem? The solution is simple enough, right? Sarah will need to file taxes in the state in which she lives and works: Colorado. Most states have a physical presence rule, and Colorado is one of them. In short, this means Sarah’s wages will be taxed where the work is done.

If Sarah lived in one of the five states that does not follow the physical presence rule , she’d have different rules to follow. The wages she earned would be taxable in the state where she lives and the state where her employer is located.

There are a couple of exemptions, including an exemption for work that could only be performed out of state. An employee who works in sales and covers an out-of-state sales territory is a good example of this exemption .

A few states have also issued exemptions for workers affected by COVID-19 “stay at home” orders. Georgia, for example, has offered tax protections to workers who temporarily relocated to Georgia and telecommuted to work. They do not have to pay Georgia income tax for the time that they were working in Georgia under an official stay at home order or during quarantine from exposure to COVID-19 .

Most states have not changed their income tax rules in response to the pandemic, so check with your state department of revenue for more information.

Other Living In One State Working In Another Income Tax Questions

Living In One State While Working In Another State – Will You Be Double-Taxed?!

If your employer made a mistake in your state tax withholding, its annoying but it isnt complicated to fix. For instance, if they accidentally withheld taxes for a state you dont live or work in, you can get your money back by filing a tax return for that state. Learn how to read the different abbreviations on your payroll stub so you can understand what your employer is withholding.

This will help avoid mistakes like this from happening in the future. If youre wondering, how do I handle income tax working in another state on my Federal Tax Return?, rest easy. Federal income taxes are separate from your state taxes.

The IRS governs Federal taxes, while state taxes are managed by each individual states own entities. For your federal taxes, you only need to report your entire income to the IRS, it isnt divided by state. Finally, for worries about double-taxation, this is also addressed on your resident tax return. If you file multiple state income tax returns, you can usually claim a credit on your resident state return for any taxes you paid to the nonresident state.In essence, although you have to file a return in both states, your income is not actually being taxed twice.

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Resident Working In Another State

A Connecticut resident is subject to Connecticut income tax on all of his or her income regardless of where the income is earned. However, if the resident works in another state that imposes an income tax, the individual is also subject to tax in the state in which he or she works.

The employer will withhold tax for the state in which the individual works and will submit the tax to that state. If the employer is also registered to withhold Connecticut income tax, Connecticut income tax must be withheld by the employer, but only to the extent that Connecticut income tax withholding exceeds the amount required to be withheld for the state in which the services are performed. For further information, employers should consult the Circular CT, Connecticut Employer’s Tax Guide.

Returns to be Filed in Connecticut and in the Other State

Estimated Payments to Connecticut May Be Required

The taxpayer who owes $1,000 or more in Connecticut income tax, after subtracting 1) the credit for taxes paid to another jurisdiction, 2) the Connecticut income tax withheld, and 3) any Connecticut PE Tax Credit the taxpayer is allowed to claim, should make estimated tax payments. Estimated payments may be required if the taxpayer earns significant income that is not subject to withholding in the other state . Estimated payments for calendar year taxpayers are due on April 15, June 15, September 15, and January 15 and are made using Form CT-1040ES.

Benefits Of Being An Independent Contractor

A major benefit of being an independent contractor is you can deduct certain expenses from your income that traditional employees who receive a W-2 are not entitled to.

For example, if you perform locum tenens work and have to pay for scrubs or other work uniforms to perform your job duties, you can deduct the cost of the scrubs from your income which is a great way to reduce your tax bill. On the other hand, a physician who is earning a salary and traditionally employed by that same hospital will not be able to deduct the cost of the scrubs from their income. This is a huge benefit of being self-employed.

Another example is if you have to drive for your locum tenens work, you can deduct the mileage you drive on your tax return based on a predetermined rate set by the IRS. Your traditionally employed co-workers cant take this deduction.

You will record your income and expenses on IRS form Schedule C if you are an independent contractor performing locum tenens work. It is even more important to track your income and expenses in detail when you earn income from multiple states so that you know how much money is allocated to each state. This will make filing your taxes much easier rather than waiting until tax time and trying to remember how much you earned in each state.

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Where You May Owe

First and foremost, you owe taxes in your home state generally where you live, vote and have a home or car registration.

“You have a general rule the taxpayer owes taxes where they live their domicile state as it’s called and where they work,” said Steber.

But that gets more complicated if someone works and earns income in one state but lives in another. You may have to file a return in another state if you earn money or work there, if it’s where your company is located, you own property there or if you spend more than half the year there, according to Steber.

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Of course, some states have reciprocal agreements, meaning that you may be off the hook for taxes in more than one state depending on where you live and work.

“If the state you live in has a reciprocal agreement with the other state you worked in, then you wouldn’t have to pay taxes in two states,” said Lisa Greene-Lewis, a tax expert at TurboTax.

Can I Still File Jointly If My Spouse Worked In A Different State Than I Did

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If you and your spouse worked in different states, you can still file your returns jointly. Report only your income in the state where you worked and report only your spouses income in the state where they worked. On your resident return for the state you live, you will list both of your incomes. If either of you is due credit for taxes paid in another state, it will appear on your resident return. If either of you owe tax to your resident state, it will also get calculated here.

There is no harm in filing separate state tax returns if it makes you feel better, but doing so isnt necessary. Be aware that although its legal to file jointly on your federal return but separately on your state returns, many tax preparation software programs get confused by this. There are often workarounds that you can use to get the job done, but the process may prove arduous and time-consuming. You may need to read several help and FAQ files to learn how to do this since every program is different.

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How To File Taxes When You Live And Work In Different States

Most workers have a job in the same state where they live. In fact, to many workers, the very idea of living in one state and working in another might be unfathomable.

How many Los Angeles residents, for example, get in their car and drive to work in Las Vegas every day? Probably zero.

But, the truth is that many people actually do work and live in separate states.

Usually, this occurs when cities are near state lines.

Great examples of this are workers in New York who live in New Jersey, or Louisville, Kentucky residents who cross the state line and work in Indiana.

This can create confusion at tax time.

Do you have to pay tax in both states? Doesnt that mean double taxation? Or do you just pay in one state? Which one?

The truth is that state governments have already figured out that this could be a problem, and theres a working solution in place.

And no, you wont get taxed twice just because you take a job in another state.

Here are all the ins-and-outs of state taxes and residency requirements so that if you ever find yourself in this situation, youll know how to handle it.

How Do I File A Tax Return While Living In One State And Working In Another With Reciprocity

The exception to state income tax working in another state is if you work in a state that has a reciprocal agreement with the state where you live. Some, not all, states have reciprocating tax agreements with bordering states. If youre living and working in two states with a reciprocating agreement, then you might not have to file two-state returns.

Reciprocity is not automatic. When youre eligible for tax reciprocity between states, you must specifically request that your employer deduct taxes based on your state of residence and not the state where you are working. If you dont you both states may tax you and you’ll need to file two state income tax returns.

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Do You Pay Taxes Where You Live Or Where You Work

The short answer is: it depends. First, the good news. Congress passed a law in 2015 that forbids double taxation. This means that if you live in one state and work in another, only one state can tax you. You may still have to pay income tax to more than one state, but you cant be taxed twice on the same money. You wont need to worry about paying income tax in multiple states, even if you have to file more than one return.

When you live in one state and work in another, the state where you work usually gets to tax you and will withhold the appropriate amount from your paycheck each week. In this situation, you will have to pay out of state taxes.

At the end of the year, you will file two returns. Youll file a nonresident state return in the state you worked. On it, list only the income you earned in that state and only the tax you paid to that state.

Youll then file a resident state return in the state where you live. On this return you will list all of your income, even that which you earned out of state. Dont worry though. There is usually a place on the return where you can report and get credit for the taxes you paid to your work state.

Note that this is often the way things work you simply pay tax in the state where you work. As always, however, things arent quite so simple when the tax man cometh. Things are different if the two states youre dealing with have a reciprocal agreement, sometimes referred to as a reciprocity agreement.

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