Posted by Fletcher Accounting and Tax Service Inc.

How Do I Handle Taxes For More Than One State

How Do I Handle Taxes For More Than One State

People who live in one state and work in another may need to file a return for out of state taxes. Even if a return is filed for earnings in the state where they reside, if they have earnings in another state they may be required to file a separate return. This applies to income that is not related to work as well. Each state has specific requirements, so it is vital to be informed about this topic.


Qualified Earnings-Work


Earnings that must be reported on a nonresident return includes income from work. The determining factor is where the income was earned. For example, a resident of one state that physically goes to work in another will have to file as a nonresident. However, if the employer is located out of state but the employee works remotely in their own state, they will file the return in their home state.


Qualified Earnings-Other Income


Other types of income that must be taxed in a separate state include rental income from out-of-state property, profit from the sale of property, and winnings from gambling. If the taxpayer owns a business out-of-state they may need to file a return. Income received by beneficiaries of an estate or trust may also need to file. Active duty military that conducts outside work in a state other than their legal residence may also need to file an out-of-state return.


Employer-Related Issues


Sometimes an out-of-state employer withholds taxes for the state where the company is located and the employee works remotely. For example, a worker who resides in Colorado and works from home for a Utah-based employer should have taxes withheld for Colorado, not Utah. If taxes are withheld for the wrong state the employee should file a nonresident return, but claim zero income so they can get a refund of the withheld taxes. The employee should ensure that in future years the employer withholds the proper tax amount.


Residents of Tax-Free States


Employees who live in tax-free states and work in states where income is taxed must still pay out of state taxes. States that do not have an income tax are Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming. A resident of Montana who works in Nevada must still pay the tax required by Montana on the Nevada income. However, a taxpayer who lives and works in states that do not have an income tax does not have to concern themselves with state income tax at all.


Filing a Nonresident Return


All state filers should complete their federal tax return before completing any state tax returns. It is also a wise idea to prepare the nonresident form first so that all calculations are correct. While it is possible to accurately prepare returns at home, many people turn to a trusted tax preparer. Fletcher Accounting and Tax Service can assist taxpayers in filing the correct returns in an efficient manner. Using a tax preparation service is a hassle-free way to complete this annual chore. Fletcher Accounting and Tax Service can also assist with other accounting and tax needs. They can be contacted today by visiting their website.

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