Most people in the US live and work in the same state, which can make state taxes pretty easy to understand: you’re earning money, and you’re paying a tax on it. But what if you live in one state and work in another? Are you getting taxed on where you live when you make money, or where you make your money?
What often happens is that you withhold some income for each state tax. For example, if you live in New York and work in New Jersey, you’ll see New Jersey and New York taxes taken out of your paycheck. You’re not being double-taxed, though: when you file, you’ll be able to file as a New York resident and a New Jersey nonresident. Then, on your New York return you can claim the taxes you paid to New Jersey.
If it sounds complex, there’s a reason for that: it is. For this to work, every state needs to make agreements with every other state covering the income they could both theoretically tax. These agreements are structured to generate a minimum amount of paperwork and special cases: instead of having some workers who lives in a state but doesn’t pay taxes, the states have someone who lives in the state and pays taxes like everyone else — but gets a special tax credit at the end of the year.
In a situation like this, it’s often best to talk to your payroll department about how to proceed. In places with many out-of-state commuters (like New York, New Jersey, and Connecticut, as well as cities near state borders), they will have the details on how each state treats out-of-state income.
Tags: State Taxes
This entry was posted on Monday, June 15th, 2009 at 10:52 pm and is filed under State Taxes.- Unlimited live support.
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I’m not sure that I agree 100% with your post, but I did find it interesting.
What if you live in a state that has no income tax and work in a state that does? Are you taxed where you work or where you live?
Hi Sheryl,
In this situation, you would file a non-resident state return for the state you worked in. This will only tax the income you earned in that particular state.
I work in Wyoming and live in Idaho. What should I withhold from my taxes fro Wyoming? What should I withhold for Idaho?
Hi Richard,
Lucky for you, Wyoming has no income tax. So you don’t need to worry about witholding any Wyoming state tax. Idaho, however, does have an income tax and Idaho residents are taxed on all income, including that earned out of the state. So you do need to make sure that your Idaho state income tax is being witheld from your paycheck. And of course, don’t forget about federal taxes too!
OK. So here is my situation. I am working in Alaska, live in Colorado and my company is based in Louisianna. They are taking louisian state taxes out. What is the right situation? What state should my taxes be taken out for? I am guessig NOT Louisianna.
Hi Mike,
You will always be taxed in the the states in which you live and work, so you should be taxed in Alaska and Colorado (though lucky for you, Alaska has no personal income tax). You should not, however, be taxed in Louisiana if your company is based there but you don’t work there. But if you own the company, it’s an entirely different tax situation altogether and you could very well be taxed in Louisiana.
I currently work in New Jersey and have an opportunity to live in New York but am concerned about the tax implications of this. Am I going to end up paying more taxes if I live in New York and work in New Jersey. Should I just look for a place in New Jersey and live in the same state I work in?
Hi Dave,
Living in New Jersey might make your tax situation a little simpler, but it probably won’t save you money. It’s true that when you file, you’ll be taxed in both New York and New Jersey. But you’ll be able to claim the taxes you pay in the other state.
I currently live in Oregon and work in California. Do I need to change my withholdings to Oregon or keep them California or both?
Hi Haley,
You will actually be taxed in both Oregon and California. The good news is when you file you should be able to claim the taxes you pay in the other state, which should prevent you from paying much more in taxes than someone who just lives in one state.
I live in Arizona i work from home and work for a company in New York how do i file my state income tax ? do i have to pay in two both states ?
Hi Stephanie,
Don’t worry, you don’t have to pay New York state taxes. You are considered to live and work in Arizona. Therefore, you only need to file Arizona state taxes.
I live in NV (no income tax state) and work in AZ. Do I file a non-resident AZ tax form and claim a credit and refund for the taxes I have paid to AZ?
Sheryl,
That’s correct. You should file in Arizona as a non-resident.