Multi-State Tax Returns

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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 multistate tax returns.  If these tips don’t solve your problem, do call and get some help.  They’re not always easy to handle.

784 thoughts on “Multi-State Tax Returns

  1. Hi Jan,
    First, thank you very much for the great site, and for your time. I think my question is a little different, though.
    In 2013, my husband worked and lived in GA and while I lived in IL with our two children. I’m a house wife and have lived in IL for 5 years. We filed married filing jointly as GA residents, and didn’t file an IL return since we didn’t have any income from IL.
    However in 2014, my husband moved back to IL in Apr. 2014, and worked in the Chicago office of the same company for the rest of 2014. In addition, my husband changed jobs and moved to CA for the last two weeks of 2014. I still lived in our IL home with our two children for 2014.
    For the 2014 tax return, should we file as (1) part-year IL resident and part-year GA resident, and CA as non-resident, in which case after filing CA as non-resident, then which resident state should we file first, IL or GA? (2) Whole year IL resident, GA non-resident and CA non-resident, in which case which non-resident state should we file first, GA or CA? Or it does it not matter? (3) Or should we file a different way? Thank you for your advice and valuable time.

  2. Hi jan i live and worked in California for the whole 2014,my wife live in arkansas and has no income,we filed fedral jointly but my step son claimed her on the arkansas return and got the refund,can i file my ca return married filing separately?

  3. Forgive me if my question is answered among the comments (there are too many to read!). I moved to Hawaii and am working remotely for a company based in New York. I think my only tax obligations now are in the state where I live and perform my work (Hawaii) and that NY State taxes should not longer be withheld (because I won’t owe them). Is that correct?

    Thanks for your advice!

  4. Hi Cheryl,
    I believe that I should fly out there and answer your question in person. Hey, it’s worth a shot anyway.

    You’re absolutely correct. You are living and working in Hawaii and that is where you will pay your tax. You should not be withholding for New York any more.

  5. What are my tax implications if I live in CT and work in NYC? What is the correct smart way to go about get taxes taken out and to prepare to tax season. Also if I were to make 100k annually, what can I be expected to pay in taxes in regards to this multi state tax return scenario.

  6. What are the tax implications of being a CT resident and working in NYC?
    Do you end up paying full income states twice, once for NY and once for CT?

  7. Jan, Thanks so much for confirming. But, if you feel the need to come explain this to me in person, I will not stand in your way!

  8. I am behind on my taxes and have a big problem. I received my 2013 1099 and my address is incorrect. The address on my 2013 1099 is for my former residence in UT, however I lived and worked the entire 2013 year in Las Vegas. In 2014 my employer started paying me a portion salary and a the rest in commission. I received my 2014 1099 and W2 and my 2014 W2 has my correct Las Vegas address, but my 2014 1099 address has my former UT address. I am trying to get these returns filed because I received a notice form UT state saying I owe them money for state taxes. I am no longer working for this company, and when I attempted to get the address updated on my 2013 1099 and 2014 1099 I found out that the company is no longer in business. Should I just filed my 2013 and 2014 federal returns with my Nevada address and wait for the IRS to update their records and then contact UT State so they can verify through the IRS? Please help!

  9. Hi Jan, I live in Ohio but work in Kentucky. Problem is I paid taxes to Kentucky not Ohio. So now I owe Ohio. I was wondering do I qualify for the Ohio Resident credit?

  10. Hi Mike P and Mike T–

    So you live in Connecticut and work in NYC. Your company will be withholding income taxes for NY state and for NY City. On your Connecticut tax return, you will receive a credit for taxes paid to New York state.

    Now, I have one caveat–the recent Supreme Court ruling about Maryland–which sounds like it has nothing to do with you but—scuttlebutt has it that it may wind up affecting city income taxes like New York and St Louis. We’ll see if anything comes of that. Right now. you are still pay New York city income tax on your earnings there.

    As far as what the taxes are based on your income–that’s where you contact me directly and I can do a tax planning scenario for you, but I charge for that. I only answer general questions in the blog. (I’ve got a mortgage to pay. Sorry.)

  11. Hi Kristen,
    Your problem is that you didn’t live or work in Utah and they want money from you because of a bad address, right?

    You can’t believe how common that problem is!

    What you need to do is file all of your tax returns, and use your correct address of where you live right now.

    You contact Utah and tell them that you did not live or work in the state for the time period that they are asking for payment. You will probably have to send them a written letter stating that, but when you call them, they will tell you exactly what they want. Here in Missouri its as simple as turning the letter over and writing on the back the you didn’t live here. But Utah could be different.

  12. Hello Jan,

    Cheryl from HI here again… my NY-based employer continues to insist (based on some info it received via an anonymous online system at NYS dept. of taxation) that, because it is located in NY and does not maintain an official office in HI, it is required to withhold NY State taxes (because I have “NY-source income”). I just wanted to run this by you again to see if it makes any difference in your opinion…

    Thanks again, Cheryl

  13. Hello Jan/Bryan,
    I now have been transferred to NY but I own my home and have a car registered in NC. How am I to do my taxes and what state do I claim throughout the year?

  14. I work as a fisherman in Alaska for a company in Washington state.i own a house in North Carolina and are there about half the year with no income generated there do I need to pay state tax for North Carolina

  15. Hello Jan, I just got a job in WI and will be moving there from California. My wife will be staying in CA for the next 18 months due to a contract she has with her employer. I intend to declare my residence in WI but as we own a home and my wife will continue to vote in CA she will have a CA residence. I know your not an expert on California but how will this work from a tax stanspoint?

  16. Hi Jerry,
    California is still going to want to tax your income. They will still give you a credit for the tax you pay to Wisconsin, but they will include your Wisconsin income on the tax return.
    When you’re doing your taxes you’re going to want to read the lines very carefully on the non-resident part of the CA return. The California taxation of non-resident income is different from most other states so it’s kind of counter-intuitive.
    If you’re hiring a preparer, definitely use a California licensed preparer for this as they’re going to get it right.
    Be prepared to owe some money to CA for 2015.

  17. Hi Arthur,
    Okay you work in Alaska and own a home in North Carolina. The company you work for is in Washington state but you don’t live or work in Washington.

    I’m guessing that you are living in Alaska when you’re not at sea fishing.

    So pretty much, you’re in a situation where you can pick your tax home. North Carolina or Alaska. Since you’re in NC for half of the year, you can choose NC if it makes sense to you. You would have to pay Alaska income tax anyway (if Alaska had a state income tax) so filing as an Alaska resident and not filing in NC probably makes the most sense. Unless you have some income that you earn in North Carolina, then I would not file an NC return.

    Now, if you have not place to live while you’re in Alaska–for example if you live on a boat the entire time you’re up there, then that would make NC your permanent residence and your tax home and you’d need to file an NC tax return in that case.

  18. Hi S. Jones,
    If your transfer to New York is temporary, then you would still file as a NC resident. If your move is permanent, then you will file as a NY resident. Since you started the year in NC, you would do a part year return for both states.
    You can be a NY resident and still own property in another state. A lot of how you’re going to file for 2015 will depend upon what is your intention. Do you intend to make NY your permanent home or not?

  19. I iive in CT and work for a company based in Plano Texas. from time to time I do work in NY state. Total hours in NY is may be 6 hours a week, and is not consistent How do I claim taxes?

  20. Hi Debbie,
    You live and work in Connecticut so your company should be withholding Connecticut income taxes. They should also be withholding for New York for the time you’re working there. You will file a Connecticut resident tax return and a New York non-resident tax return.

    Keep track of your time spent in New York. If you’re working a whole day in NY, that would count as working in NY, but if you’re just attending a meeting there, that might not constitute actually working in NY. You mentioned 6 hours a week–that’s less than a whole day.

    If your employer says you’re working in NY, then they should be withholding NY taxes. I’m thinking they’re not counting your NY time as “working” there–in which case you wouldn’t be required to file a NY return.

  21. Hello Jan,
    I am a graduate student. I live and go to school in Oklahoma. I took a paid summer internship for 6 weeks in Missouri. I then took a second paid summer internship in California. I also have an income based soley in Oklahoma. How should I file at the end of the year? I need to check, but I believe there were no boxes to check on the California w4 form for someone that’s not a California resident. Thank you for your help!

  22. Continuing from above…I should also mention that I listed my temporary Missouri address on my MO w4 form. I do not remember there being a check for out of state persons there either. While I was in MO, Oklahoma took state taxes from my paycheck, but since I’ve been in CA no OK state taxes have been taken out. I may need to alert the HR department.

  23. Hi..we are currently updating our wills and want to check on a residency question. We own one home and it is in Florida. I do not work and am a resident of Florida. I have a Florida DL, voters reg and 2 of our 4 cars are registered in Florida in both of our names. My husband works in Arizona where we rent. We will be there for a few more years. We know we will still pay state AZ tax and our federal but is there any other reason that he can not become a florida resident again? There is not a state tax in Florida so we would not have that issue of two state taxes.

  24. Hi Kelly,
    I see no problem with you and your husband being Florida residents. Your husband will still be paying Arizona taxes, and it looks like his tax home is Arizona for now, but with you being in Florida, that makes Florida your home.
    The tax home thing gets tricky with passive income. So if you have retirement or investment income, that’s taxed to the state that you live in. If your husband truly lives in Arizona, it will get taxed there. But if he’s commuting back to Florida on a regular basis to be with you, then you’ve got a good case for him being a Florida resident.
    But just to be on the safe side, I’d check with an Arizona tax preparer about your husband’s passive income and how it should be taxed while he’s still living in Arizona. I don’t have a lot of experience with Arizona returns so you’re better off getting another opinion.

  25. Hi Brayden,
    You will file a Missouri non-resident return and a California non-resident return and an Oklahoma resident return. On your Oklahoma return, you will get a credit for the tax that you actually paid to Missouri and California. since you only worked 6 weeks in those states, you might get all of your withholding back. So there might not be a tax credit there. The credit is for the tax the other states actually keep, not what was withheld.
    There usually isn’t a box to check for you being from out of state. The law requires the company to withhold tax for the state you work in, not the state you live in. They don’t really care where you live.

  26. Hi Jan, Thank you for your help to all of us people needing assistance! My husband and I closed on the sale of our Ohio home on July 9, 2015 and moved into our Florida home on July 12, 2015 (closing for the Florida home was July 7, 2015). I read somewhere about paying Ohio income tax and 143 days living in Ohio. Not sure where I saw that, but was thinking it meant that we had to pay for the full year if we lived there more than 143 days??? Can you clear that up for me? Thank you so much again! Linda

  27. Hello,
    I have a question and I hope someone could help……my husband lost his job back in October 2014 and finally got a new job working in Illinois. We live in Missouri and on my tax papers for state I claim myself and him. Now since he started his new job, I’m not sure what he needs to claim for Illinois state taxes since I claim him on mine. Can someone help clarify what he needs to claim for state taxes. Thanks!!!

  28. Hi Linda,
    What you’re going to be is a part year resident of Ohio for tax purposes. So, for any income that you earned, whether it was wages, interest, capital gains, retirement, whatever…from January 1 2015 until July 12 2015, that will be taxed in Ohio. Any income that you earn after that is taxed in Florida – which has no state tax.

  29. Hi Kayla,
    Congratulations on your husband’s new job. So you will be filing as a Missouri resident and an Illinois non-resident. Your husband will only be paying Illinois tax on his income, not yours. For what it’s worth, Illinois doesn’t have all the deductions that Missouri has so it’s kind of weird, even though the Illinois tax rate is lower than Missouri (5% versus Missouri’s 6%) it will often be the case where the Illinois tax is higher than the Missouri tax.
    Anyway, since you have two incomes now, he may want to claim married but filing at the higher single rate (there’s a box for that) with zero exemptions. Because now you two will probably bump into a higher tax bracket.
    The best way to figure this is to go to the IRS withholding caclulator” http://www.irs.gov/Individuals/IRS-Withholding-Calculator
    But if he claims single and zero for now, that should cover you just fine. You can always readjust the withholding after you do your 2015 taxes if you’re taking out too much.
    Remember, since he’s paying into Illinois, when you prepare your Missouri return you’ll claim a credit for the tax that you pay to Illinois. That should keep you from having a big balance due to Missouri in April.

  30. Hello,

    I am currently a NY State resident, working in NY City. I was looking to move out and rent in Westchester County, but it has been brought to my attention that it may be beneficial to me to rent in CT instead. Is this accurate? What are the pros and cons of becoming a CT resident working in NYC vs remaining a NY resident? Will I pay out more by changing residency to CT? I know that I would get a tax credit, but does that cover all that was paid out? Would that still be cheaper than remaining a NY resident?

    (FYI-renting a unit, only–I also have a car which is subject to local property tax in CT)

    Thanks!

  31. To elaborate a little more on my previous question–the state tax rate is about 0.9% higher for New York than CT, based on my income.

  32. Hi Theresa,
    I honestly don’t know. I live in Saint Louis, Missouri. Whether you should live in Westchester County or somewhere in Connecticut is outside of what I can help you with. You’ll get much better advice from someone local.
    Why? Because I don’t know what I don’t know. For example: here we talk about living in Illinois vs. Missouri. Now the Illinois state tax is 5%. Missouri state tax is 6%. So you’d think that it’s cheaper to live in Illinois for the taxes, but it’s not! Missouri has all sorts of deductions that Illinois doesn’t have so often (not for everybody) it’s cheaper to live in Missouri. But a lot of that depends upon your situation.
    So talk to someone in New York/Connecticut who knows the ins and outs. You’ll get much better advice than anything I could possibly tell you. Sorry.

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