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The Basics in Handling Taxes For More Than One State

The Basics in Handling Taxes For More Than One State

The U.S. Supreme Court ruled in Comptroller of the Treasury of Maryland v. Wynne in 2015 that two states cannot tax the same taxpayer on the same income. But this decision is subject to many rules. This will not prevent you from filing multiple state tax returns in some cases.

You may have to file multiple state returns if you lived or worked in different states during the fiscal year. But your state of residence should give you a tax credit on your residency tax return you pay in another state because of the Supreme Court ruling.

Additionally, sixteen states and the District of Columbia have agreements with each other that will allow you to avoid filing multiple state tax returns if you live and work in those jurisdictions.

You may be required to file a self-declaration for semi-annual residents or a self-declaration for non-residents in a state other than where you reside. But that doesn't mean you have to pay taxes twice for the same income.


Community to another state for work

You must file a resident tax return for your home state and a non-resident tax return for your home state if you are traveling to another state for work. All of your income from all sources is included on your resident tax return, including any income you earned as part of your "work" state. But you will only include wages received under your employment status on your non-resident tax return. 

Pursuant to Wynne's ruling, many states offer tax credits to residents for taxes they pay in other jurisdictions. The taxes you pay to your employer are deducted from the taxes you pay to your home country, so you don't have to pay double taxation.


Some states have entered into agreements.

Some states recognize the added hassle this can create for working families living in one state but working in another, so they have created "reciprocity" or "reciprocal" agreements between them.

This often happens in neighboring states, when residents of one state regularly cross the border to find work in another, usually a more metropolitan area with better wages. Many residents of Camden County, New Jersey, have jobs across the river from Philadelphia.

Mutual agreements allow you to work for free in a neighboring state. Your employer in your state of employment will not withhold tax from your wages earned there if it is in this type of agreement with your home state.

You are required to file an exemption form with your employer in order to benefit from a reciprocal agreement. Each state has its specific form, so check with your state's employer or website to make sure you're getting the right form.


States with tax reciprocity

Sixteen (16) states and the District of Columbia have mutually agreed to other jurisdictions as of 2022. These include Arizona, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Montana, New Jersey, North Dakota, Ohio, Pennsylvania, Virginia, West Virginia, and Wisconsin.

New Jersey Governor Chris Christie revoked his state's reciprocal agreement with Pennsylvania in 2017 but was later reinstated. These two states still have reciprocity from 2022.

 

If you work for an out-of-state employer

A common misconception about state taxes is that you have to pay them to the employer's state. You can live and work in New York for a California company. But you shouldn't file a California tax return in this scenario.

The location of the employer's head office or place of business has no effect on state taxes.

Taxes depend on your physical location at work. It does not make any difference if your employer's business is located somewhere else, as long as you don't go there for work.

Non-residents who do not physically live or work in a state can create income tax in several ways. But simply working for an out-of-state business is not one of them. The need to submit a state tax return is the result of receiving payment for work performed personally on the state's soil.

You may also need to file a non-resident declaration if you own rental property in another state if you are raising funds for the property you own there.

 

If I lived in two states

You would need to file two state tax returns for part of the year if you moved to another state during the fiscal year. A return will go to the previous state. One will go in its new state. If so, you will split your income and deductions between the two returns. But some states require you to report all of your income as income, even if you've lived there for less than a year.

You could seek advice from your employer's human resources department or contact a local tax professional if you lived in more than one state during the tax year.

This process can vary greatly by state. 

 

Spouse working in different states

In the past, a major problem for military families has been residing in more than one state. Soldiers are exempt from residency and tax status in the states where they are stationed, but their spouses were not always exempt before 2009. This implies that each spouse would have their own residency status. They would owe taxes to both states.

The Military Spouses Residency Relief Act was passed in 2009. This legislation largely eliminated the problem of double taxation for military personnel and their spouses.

Other spouses who are newly married, separated, or traveling to other states may find that they owe taxes to more than one state. You can still file state tax returns together if you are married and need to file in more than one state. However, most states require you to include you and your spouse's income on their return.


In which state will I pay taxes if I work remotely?

You will file taxes for the state where you live and work if you work remotely, regardless of where the business is located. As long as you do not work in another state more than 30 days a year, you only need to file your taxes in the state where you live.


How do I file a non-resident state tax return?

Check the rules and regulations of the state you worked for if you need to file a non-resident state tax return there. You still have to claim income earned in that state, even if you don't owe any taxes. These can include wages from a job, money earned from gambling, and any income from renting a home.

 

Summary

  • File a non-resident state tax return if you live in one state but work in another and have taxes withheld.

  • Find out if your states have mutual agreements if you live in one and work in the other.

  • You may have to split your income and deductions if you move during the fiscal year. This would mean that you actually have two resident states.

  • Your home country must give you a tax credit for taxes you have to pay to another state.


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