Multi-State Tax Returns

Preparing multi-state tax returns is tough.

It isn’t always easy preparing your taxes when you’ve worked in more than one state. We can help you get it right!

 

 

I get many calls from people who prepared their own returns with two or more states and they all say something pretty similar, “I did the return, the federal is okay but the state just doesn’t seem right.”  Then I ask, “Do you owe way more than you think you should?”  “Yes, how did you know?”  I do this for a living.  The quick answer is to check to see if you took a “credit for taxes paid to another state”, that’s usually where the problem is.

 

Normally, I would have put that at the end of the blog post, but it’s such a common problem that I figured it needed to go first.  Quick answer and you’re done.  If you need more information, I’ll start from the beginning.

 

Two states can usually be handled by most of the major tax software companies with no problem.  Remember the credit for taxes paid to another state and you should be good.  On the other hand, three or more states can send your software into a tizzy.  Even with my professional grade software, I still have to compute numbers by hand and manually input them into the program.  If you’re dealing with three or more states, spend the money on a professional.  It’s a good idea to ask, “Have you ever done a California return before?”  (Or Ohio, or North Carolina, or whatever.)  Experience helps.

 

Back to the two states:  There are two situations where you could have two state returns.  One would be you moved from one state to another, for example moving from Indianapolis to Chicago for a job.   The other would be where you live in one state but work in a different state, for example living in St. Louis, Missouri but working across the river in Alton, Illinois.  These two types of situations use different forms.

 

Moving:  When you move from one state to another, you’ll be filing your two state returns as a “part-year resident”.  You’ll be completing paperwork that says how long you lived in the state, what your earnings were for the state, etc.  You should only be taxed on the income that you earned while you lived and work in the state.  If you withheld properly, your taxes should come out normal, no big refunds, nor big balance dues.  Most of the time in a case like this, you won’t be filing a “credit for taxes paid to another state” because the “part year resident” return will handle you income allocations.  (Most of the time—there’s 50 states and they all have different rules, so in some cases you’ll still be doing the credit for taxes paid to another state.)

 

Living in one state and working in another:  this situation is a little different.  You will be a “resident” of the state you live in and a “non-resident” of the state you work in.  The state you work in is the state your company is going to withhold taxes from.  But the state you live in is going to tax your income too.  This is where it’s really important to remember the credit for taxes paid to another state, because if you miss taking that credit your tax bill could be enormous.  Sometimes, the tax bill is still pretty large even when you’ve done everything right.  For example, here in Missouri our state income tax rate is 6%.  Next door in Illinois it’s 3% (although it’s moving up to 5% this year.)  If you live in Missouri and work in Illinois, you’re going to get hit with a pretty harsh state tax bill unless you had Missouri taxes withheld or paid estimated taxes.

 

Here’s some other tips that will help you with your multi-state return:

1.  Always do the federal return first.  Don’t start the state returns until the federal is done and you feel that it’s correct.  If you have to go back and make changes to the federal, your state numbers will be off.

2.  Non-resident income:  that’s wages that you were paid in a state you didn’t live in.  It also includes self-employment performed in the state.

3.  Resident income:  the state you live in will tax everything, in addition to your wages, it will tax your pension, interest, investment income, everything.

4.  Moving expense deduction-always goes to the state that you moved to, not the state that you moved from.

This is a pretty quick and dirty summary of multi-state tax returns.  If these tips don’t solve your problem, do call us and get some help.  They’re not always easy to handle and we do this for a living.

886 thoughts on “Multi-State Tax Returns

  1. Hi Daphene,
    You can Congress are both trying to figure that out. Basically – your state income tax withholding is based upon the state that your home office is in. Now, many people travel for work, but most of that travel is short term, like a week at a time or less.

    People who work for several weeks in a row in a state may have withholding for that state, but if you’re traveling for just a few days at a time, then you still pay tax to your home office.

    Congress was trying to tackle the multi-state issue – but it got pretty confusing and nothing has been done about it yet.

    So, for now, you husband will be paying Montana state income tax based upon his wages in Montana. Utah will give you a credit for the taxes you pay to Montana. You won’t pay taxes to Idaho or Arizona unless his employer starts withholding taxes for those states – which right now seems unlikely.

  2. Hi David,
    Your office is in New York City. When you are traveling for your company, you are still considered to be working in NYC even though you are traveling all over the world.
    It would be different if you spent those 10 weeks in one spot. Then your company would withhold taxes based upon that location. But for most corporate travelers when you spend one week on the road at a time in different locations, it would be a nightmare for your corporate office to handle the logistics. And – you would wind up doing a tax return for each of those separate states. (And if you’re doing international travel you don’t want to deal with those taxes either!)

    Your point is – could your company allocate the income to NJ instead of to NY? But you don’t work from home at all do you? I just don’t think it will fly.

    Now – is there a break on your federal return? Hopefully not. If you have travel expenses, you can write them off on form 2106 – but, they are subject to 2% of your adjusted gross income. AND – and this is really important, you can’t write off travel expenses if your company pays for them. AND – you really want your company to reimburse you for all of your travel expenses – reimbursements are much better than tax deductions.

  3. Hi Howard,
    Non-residents of New Jersey are subject to paying tax on their New Jersey gambling winnings just like residents. Here’s a link: NJ Gambling winnings

    You still need to file because NJ won’t know you had the losses to offset your gains.

  4. Hi Louis,
    Well, if PA tax told you to file as a part time resident, then I’m not going to argue with them. The reason they want that is because if your retirement money. If you live of the year in PA – your retirement is taxed in the state you live in Hence – PAs interest you you being a part year resident.

    Here’s the thing, the way I read it, you’re not a PA resident anymore. Here’s a link to the PA instructions about domicile: Pennsylvania DOR

    But I’m not a PA expert. So you might want to get an opinion from a PA preparer. But the way I’m reading it is that you are an AZ resident, although you will need to pay tax on any income you earn in PA. I’m agreeing with you.

  5. Hi Travis,
    First – you have a couple of issues here, but I want to address the capital gain on the sale of your home first. Did you live there for more than two years? And is the gain less than $250,000? Because if the answer is yes, then you won’t pay tax on the capital gain. (Which would be totally awesome!)

    But, you live in California so you could have over $250,000 in gain. (By the way, if you’re married and filing jointly – the exclusion is $500,000. And I am talking gain, the the sale price of the home.)

    Since you’re selling and moving to another state – that’s generally going to be a part year return for California and for Georgia. Generally, the tax software allocates your schedule A deductions based upon a percentage of the income earned per state. But, if you made the deductions while in California, you can show that deduction as belonging to California – but it still might not make a difference. The best way to do this is to run a sample scenario through the tax software – allocating the charity donations to California and see how it comes out.

    California is a unique state as far as taxes are concerned. It’s always best to run through the numbers and take a look. Also, a California based preparer would give you better insight. When you’re dealing with a big taxable gain – it’s worth it to have someone give you a thorough review.

  6. I plan to sell my home in California (large capital gain) and then move to Georgia. Do charitable contributions I make while living in CA apply only to the CA tax return or do they get split between the two states?

  7. My husband and i have lived in utah for seven years and pay state income tax here. My husband recently took a job with a company who is based out of Montana which also has a state income tax. His work takes him to many states such as Idaho, Arizona, and Utah which also have state income tax. How does this work for state income tax. I understand Utah will get their tax portion based on total income, but what happens with the Montana Tax? Currently the employer is only taking out Montana tax even though he does not always work in that state. What about the other states like Idaho and Arizona. I am trying to figure out why we are paying Montana tax even though he is working outside of that state

  8. HI Jan,

    I am a NJ state resident who works in NYC. I file with NJ and NY State returns each year using Turbo tax. My question is this: If I travel around the world frequently for my job which means that I am not actually working in NY state for say 10 separate weeks (50 days) a year. Is there some benefit to adjust my gross income from NY for those days and instead allocate them to NJ where I live (bear in mind NY is more expensive b/c I pay NY state and NYC taxes). Can I also get some sort of break on my Federal?

  9. I live in NY and had gambling w2-gs from NJ casino. Do I have to file a NJ tax return >.My federal return shows gamling losses equal to wins (you cant bring forward a loss greater than winnings..so it equals a ZERO AGI…am I still required to file a non resident income NJ tax return..even if I dont owe any tax? (YES I itemized my deductions properly on my 1040 to show losses equal to wins) (have proof statements from Casinos off exact losses in dollars)…

  10. We are snow birds, we own 2 houses, 2016 we changed our primary residence from PA to AZ. We spend 7 months
    in AZ and 5 months in PA which is now our secondary residence. I was told by PA tax to file as a part time resident.
    Reading the tax publication for AZ, I think I should file as resident and use the PA,G-L form to claim a credit. Am I
    correct in doing so?

  11. Thanks Keith,
    I figure what goes around comes around. But anyone is always invited to donate to their favorite charity if you like the advice. If you don’t have a charity you like, I always try to promote The Arya Foundation. We help provide children with special needs adaptive equipment to help them live better lives.

  12. Thanks for such a fast reply, especially during what I imagine is your busiest time. Also, thanks for offering your expertise without billing folks for every last second of your time.

  13. Hi – in 2015 my wife and I moved to Oregon from Georgia and became Oregon residents. In 2016 we filed Oregon, Georgia, and Federal returns for 2015. We filed as married, joint, with itemized deductions, and got a Georgia refund for $1100. The refund is the only income we have from Georgia. Our question is, do we need to file a Georgia return for 2016? The instructions for the Georgia returns say that nonresidents are “not required to file a Georgia return if their only activity for financial gain or profit in Georgia consists of performing services for an employer as an employee where the wages for such services does not exceed the lesser of 5% of the income received for performing services in all places during the taxable year or $5,000.” Obviously, we meet the nonfiling requirements based on dollar amounts. But it doesn’t seem that the refund would be considered wages for services performed, nor do we have any activity of any kind for financial gain in Georgia. So, we’re confused as to whether we need to file a Georgia return.

    Thanks so much for your time and help.

  14. Hi Eydie,
    It all depends upon what your husband’s home state is – which I’d guess is Arizona since that’s where he joined. I think your best bet is to go to the base and have the base tax folks do it for you. They’re really good at it.

  15. Hi. If My husband joined the military in Az but moved to GA for all but one month in 2016 then moved to Colorado and bought a house how would you claim and what states would you claim? I am doing turbo tax

  16. Hi Elaine,
    You shouldn’t be doing a credit for taxes paid to another state. You should do a “part-year” return for Illinois, and a “part-year” return for New Jersey.

    Now, you say that you were always exempt from paying taxes in Illinois. If you’re based in Illinois – you should be paying Illinois taxes. I’m not sure how you’ve gotten out of it before.

    Now, as a flight attendant, you should have lots of write offs for the time you’re spending at those temporary locations away from your main home in Florida.

  17. Hi Barbara,
    That sounds wrong. I can’t see what you’re doing, but your gut reaction is probably right. He shouldn’t owe an enormous amount. I’d call the comapny that issues the software that you’re using to have them walk you through it.

  18. Hi Naomi,
    Generally, when you receive unemployment benefits, you report that income to the state that pays the unemployment benefits. You will also report it in the state that you live in – but Arizona will give you a credit for the tax that you pay to California.

  19. Hi Jan. I moved from California to Arizona in July of 2015. For tax year 2016, I received unemployment from state of California. Do I need to file a state return for California for the Unemployment Benefits I received and a separate one for Arizona with the wages I eared in Arizona?

  20. Hi Jennifer,
    you are a resident of Illinois for tax purposes. Since you are physically living in Nebraska, you use Nebraska for your sales tax calculation.

    As far as filing, you will file an Illinois tax return. You may need to file something for Nebraska, but it would just be to lay that you’re in the military. Usually, there are tax pros on base that know the rules for the state the base is in. The base folks are usually pretty good.

  21. This is a comment to my above post:
    According to my online research, I don’t have a filing requirement with CA for state return because my gross income was below $10,000 (I’m single with 0 dependents). Neither do I need to file anything with MO because I had $0 income from that state.
    It is my understanding that I don’t need to file ANY state returns, but I do need to file federal return – Am I correct on this?

  22. I’m a permanent Missouri resident, but during 2016 I moved to CA for 4 months. I lived and worked there as self-employed. I did not have any earned income from MO during 2016. Should I only file CA state tax, or do I file in both states as permanent and part-time resident/nonresident?

  23. I go to college in Boise, Idaho, but my permanent address is in Dayton, WA. While home, in Wahington, last summer I worked. Then when I went back to college, in Idaho, I worked for the school. Can I file my own return online using H&R Block. Washington does not have state tax, but Idaho does. Thanks

  24. Hi I’m a flight attendant residing in Florida. I’ve was based in chicago from Jan thru July and then moved to Newark for work from aug thru December. I’ve always been exempt from paying state taxes in Illinois but when I tried filing today it was showing I had to pay state taxes in both Illinois and jersey. A lot. Can you tell me where I should look for that credit for taxes paid to another state be found? Because I don’t think it’s accurate. Thanks

  25. I am working on my sons income taxes online. He lives in NC and works for Verizon Wireless Business. He had to do a short stent in MD when the work crew there went on strike. The breakdown for his wages in NC and MD is on the state section of his W-2. He owes an enormous amount to state. This is out of the ordinary for him. When entering in his W-2 information, I entered his NC information and then added another state and added the MD information. Is there another way that I need to enter the information, or was that correct and does he really owe this enormous amount? Thanks so much 🙂

  26. My son is a college student. His official address is mine, in PA. His school is in NY and he has a workstudy job there. In the summer, his college internship was in GA. Which states do I have to file? I am using Taxact and so far the federal taxes are ok, with a refund). It led me to file GA and he gets a state refund. The NY state he owes like $34 (the workstudy job didn’t take state tax out). Do I also have to file PA even though he didn’t work in PA this year?

  27. Hi Jan I am in navy and move from state to state, country to country every 3 years. In february 2016 i moved from Singapore to nebraska and purchased a house for the first time to live for next 3 years while i am stationed here. My legal residence is Illinois, my parents house but i am never stationed in Illinois. I never filed state returns before because illinois doesnt tax military personnell. With house i purchased in nebraska, which state optional sales tax do i put on schedula A, Nebraska? Or Illinois? since there is no state income tax paid? And am i supposed to file both state returns? Navy income is the only income i have and i am single. Thank you!!!

  28. Hi Brenda,
    Since you have not yet worked in Washington state, then you would still file your taxes as Guam. Then for 2017, once you start working in Washington, you will file your taxes as US.

  29. I moved from Guam to Washington state in June 2016. On Guam I worked for a DoD retail store however filed taxes on Guam, (federal taxes on Guam don’t leave Guam) where will I file them now that I am living in Washington State? I have not worked in Washington yet.

  30. Hi James,
    You purchased property but you didn’t own a home on it, you didn’t sell it, and you didn’t run a business on it so there’s not tax form that you need to fill out with your income taxes.

    But – just in case – you mentioned that you took a loan out to buy the property. If it’s just personal use property, there’s nothing to do. If it’s an investment property, you’ll want to keep track of the money you spend on the loan – the interest expense. You can’t deduct more interest than what you earn on the property, but you can carry it forward until you sell the property. (Did I give you more answer than you wanted? Sorry.)

  31. I bought a piece of property this year in Missouri I currently live in missouri. The only thing on the land is a garage. I took a loan out to buy the property. Is there a form I need to file at tax time sense I bought this property

  32. Hi Ryan,
    Generally, since you made the IRA contribution after moving to Florida, you would allocate that to your Florida income. But – state taxes aren’t all done the same way. But, I recommend that you get a second opinion from a New York tax preparer. New York is not my home state and there are lots of variations in the way states do their taxes. This is a good example where you’d want to ask a New York pro!

  33. Very helpful article. Quick question about allocating an IRA deduction to each state. Is the deduction allocated based on what state I was living in on the date the IRA contribution was made? Or is the deduction pro-rated based on how long I lived in each state? I moved from NY to FL, and made the IRA contribution after moving to FL, however the money I used was from my job in NY. What percentage of the federal IRA deduction would also be deducted from NY?

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