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What If You Live in a State That Has No Income Tax and Work in a State That Does?

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?

Most people live and work in the same state, so filing state taxes is a no-brainer. But when you live and work in different states, taxes can get really confusing really fast, especially if your home state doesn’t have an income tax. So where exactly do you need to file? Where you live or where you work?

Actually, as a general rule, you are taxed both in the state where you live and in the state where you work.

You have to file a resident return in the state where you are a permanent resident. This return will tax you on ALL of your income, no matter where it was earned.

Then, in addition to that resident return, you need to file a nonresident return in every state where you earned money. This return will only tax you on the income you earned in that state.

If you live in a state that doesn’t have an income tax, you obviously do not need to file a resident return. However, you do need to file a nonresident return if you work in a state that has an income tax. Living in a state without an income tax does not exempt you from paying taxes to other states that do have an income tax.

Withholding

One mistake people in this situation often make is that they have no state taxes withheld from their pay. Then they are surprised when they get a tax bill from the state where they work. So make sure that taxes for the state where you work are being withheld from your pay.

Location of your company

One thing to keep in mind when figuring out where you need to file taxes is that the location of your company does not matter. You are not obligated to pay taxes in the state where your company is located unless you live and/or work there as well.

This is especially relevant for telecommuters. Let’s say that you live in Florida and work remotely for a company based in Louisiana. As long as all of your work is done by telecommuting and you never physically go to LA, you don’t owe any LA state income tax. And since FL has no income tax, you don’t owe anything there.

This scenario just barely scrapes the surface of how complicated multiple state tax returns can get. Trying to file a federal return by yourself is bad enough, but working out a two state returns is even worse. File on PriorTax and all you have to do is input your information. The tax application will then fill in both returns. And if you have any questions you can give our tax experts a call. They prepare two state returns all the time.

Photo via StockMonkeys.com on Flickr. 

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2 Responses to “What If You Live in a State That Has No Income Tax and Work in a State That Does?”

  1. john moore says:

    My company just hired an employee that lives in Nevada and has agreed to relocate to VA in the next few months to work. Until then he flies back and forth forth from Nevada and Va and also does work in other states.
    He says that we should not take VA state tax out of his paycheck because until he moves to VA he is still living in Nevada. He also mentioned that his accountants agreed with his position and mentioned something about a 183 day rule.

    what do you think.?

    • admin says:

      Hi John,

      He is definitely going to owe tax in Virginia. Even though he is still living in Nevada (and thus isn’t a VA resident yet) he will still have to pay taxes on the money he makes in VA as a nonresident. If this isn’t withheld from his wages the state will just collect it at tax time with a tax bill.

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