Filing taxes in two states can be difficult, but this information should help you figure out what return you need to file where
For most people, filing a state tax return is just a brief addendum to filing your federal return. Your tax-filing software just transfers your information to your state’s return and you’re done in about five minutes.
But what if you moved during the tax year? What if you worked in a state other than the one where you lived? What if you worked in multiple states? Suddenly state taxes become a lot more complicated.
Basically there are three different types of state tax returns that you need to worry about:
- Part-Year Resident
As a general rule, you have to file a resident tax return in the state where you lived, a part-year resident return in any state you moved to/from, and a nonresident return in a state where you earned money but didn’t live.
A resident return is the return you have to file in the state where you are a resident. This return will tax you on all of your income, no matter where it was earned.
For most people this is very simple – the state where you are resident is the one where you live and work. But for people whose lives involve multiple states, things can get a little complicated. If you have a complex situation, the first step to filing state taxes is figuring out where you are a resident.
Every state has different requirements for who qualifies as a resident for tax purposes. You need to visit the websites of the tax authorities of the states in question to figure out where you are a resident.
As a native New Yorker, I’m going to use the Empire State as an example. You can find the definition of a resident here on the Department of Taxation and Finance website. Most other states will have pretty similar standards if you want a general idea of what constitutes a resident.
You should note that there are nine states without an income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you are resident of one of these states, you don’t need to file a resident tax return.
Part-Year Resident Return
A part-year resident return is for people who moved during the tax year. If you were a resident of one state for part of the year and then a resident of another state for part of the year, then you need to file a part-year resident return in the first state and a part-year resident return in the second state.
A part-year resident return taxes you on all of your income for the portion of the year that you were a resident of that state. Let’s say you started the year living in Illinois. Then in July you moved permanently to New York. You would then have to file a part-year tax return in IL that taxes you on all of your income you earned during the first six months of the year. Then you will have to file a part-year resident return in New York that taxes you on the income you earned during the last six months of the year.
You need to file a nonresident return for any state (other than the state where you live) in which you earned money. This nonresident return will only tax you on the income you earned in that state.
Here’s an example. Let’s say you live in New Jersey, but you work in New York. First you have to file a resident return in NJ. Then you have to file a nonresident return in NY and pay taxes on the income you earned there.
Don’t worry about being double-taxed: when you file the state returns you will have the opportunity to claim a credit for the taxes that you’ve already paid to another state through withholding. The states will then settle accounts among themselves.
You also have to file nonresident return for any state that’s taxes were withheld from your paycheck. Normally you only have to file taxes in the state(s) where you were a resident and where you earned money.
But sometimes HR departments goof up and withhold taxes for a state you neither lived or worked in. In this case you need to file a return just so you can get that money back in the form of a refund.
Take note: it doesn’t matter where your company is located. If you didn’t live in a state, and you physically did not work there, you don’t have to file a return there just because the company paying you is based there, although you do if they accidentally withhold taxes for that state. If this happens, ask them to stop withholding taxes in that state so you have one less return to file!
Hopefully this information will give you some basic guidance when it comes to filing state taxes. You can file your state returns right here on RapidTax after you finish your federal return, or by themselves.
Photo via John Walker on Flickr.
Tags: state taxesThis entry was posted on Friday, January 18th, 2013 at 4:14 pm and is filed under Tax Tips.