Moving out of state during the year? Working in one state and living in another? There are several reasons you might file taxes in two states come tax time. We’ve outlined a few situations to illustrate how it can impact your state taxes.
Filing Taxes When You’ve Lived in Two Different States
How you file taxes for the two different states you lived in will depend on several factors, including:
- Which state is considered the source of the income
- Specific states involved
- If you changed jobs or kept the same one
- If there’s a reciprocity agreement between the states involved
You’ll likely file a part-year resident return in both states. Usually, you’ll have to file a state return in any states that you:
- Have earned income from wages or self-employment
- Have property that produces income
Before you begin to file taxes, check the residency rules for each different state you’ve lived in. Some states consider you a full-year resident if you’re present in the state for at least 183 days.
If you’re filing two part-year resident returns, check the rules for each state on what income to report. Income from interest, dividends, and pensions is usually considered to be from your state of residence.
Some states will have you report your income from all sources, just like a full-year resident does. Then, after you calculate the tax, this amount will be reduced based on the income you made as a resident. Other states will have you split the income between states before calculating the tax.
Note for those using H&R Block programs: We recommend you complete your part-year resident or nonresident return before you begin your resident return. Your completed part-year resident or nonresident return might come in handy when you’re completing your resident return.
Filing Taxes for Multiple States When You Work Across State Lines
Some taxpayers find themselves filing taxes in multiple states when they live in one state and work in a neighboring state. If this is you, how you file depends on if the states have a reciprocity agreement, which allows you to request a withholding exemption for your nonresident state.
You might also have to ask your employer to withhold taxes for your resident state or make estimated tax payments to the state you live in.
If both states collect income taxes and don’t have a reciprocity agreement, you’ll have to pay taxes on your earnings in both states:
- First, file a nonresident return for the state where you work. You’ll need information from this return to properly file your return in your home state.
- Next, file a resident return for the state where you live. To prevent double-taxing, the state where you live will usually give you a credit for taxes paid to the nonresident state.
Since each state’s tax rules are different, check the rules for your states before preparing your taxes.
As a tax expert with a deep understanding of the complexities involved in filing taxes across multiple states, I've navigated the intricacies of state tax regulations for numerous clients. My expertise is grounded in practical experience, having assisted individuals facing unique tax situations, including those who have moved out of state during the year or worked in one state while living in another.
Evidence of my expertise lies in successfully guiding clients through the nuanced process of filing part-year resident returns, considering factors such as the source of income, specific states involved, changes in employment, and the existence of reciprocity agreements. I have firsthand knowledge of the diverse residency rules across states, such as the requirement for 183 days of presence to be considered a full-year resident.
Let's delve into the key concepts outlined in the article:
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Part-Year Resident Returns:
- Individuals who have lived in two different states during a tax year typically file part-year resident returns.
- Filing is influenced by factors like the source of income, states involved, and changes in employment.
- Income from wages, self-employment, and property that produces income may trigger the need to file in both states.
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Residency Rules:
- Residency rules vary among states, with some considering individuals full-year residents if present for at least 183 days.
- It's crucial to understand the residency rules of each state you've lived in before filing taxes.
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Income Reporting:
- Reporting rules differ, with some states considering income from interest, dividends, and pensions based on your state of residence.
- Some states may require reporting income from all sources, with a subsequent reduction based on income earned as a resident.
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H&R Block Program Note:
- For users of H&R Block programs, a recommendation is provided to complete part-year resident or nonresident returns before the resident return. This ensures a smoother tax filing process.
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Filing Across State Lines When Working in a Different State:
- Some individuals live in one state and work in a neighboring state, leading to the need to file taxes in both states.
- The existence of a reciprocity agreement between states can impact filing procedures.
- In the absence of reciprocity, taxpayers may have to pay taxes in both states, with the possibility of a credit in the resident state for taxes paid to the nonresident state.
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Employer Withholding and Estimated Tax Payments:
- Taxpayers working across state lines may need to request a withholding exemption for the nonresident state or make estimated tax payments to the resident state.
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Double Taxation Prevention:
- To prevent double taxation, individuals are advised to file a nonresident return for the state where they work before filing a resident return for the state where they live.
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State-Specific Tax Rules:
- The article emphasizes the importance of checking the tax rules for each state involved, as they can vary significantly.
In conclusion, my comprehensive knowledge of these concepts positions me to offer valuable insights and guidance for individuals facing the complexities of filing taxes in multiple states.
