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 Connecticutt, as well as cities near state borders), they will have the details on how each state treats out-of-state income.
This entry was posted on Monday, June 15th, 2009 at 10:52 pm and is filed under Uncategorized.- Unlimited live support.
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